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Determinants of Repo Haircuts and Bankruptcy

Author

Listed:
  • Jean-Marc Bottazzi

    (Paris School of Economics, Capula)

  • Mario Pascoa

    (University of Surrey)

  • Guillermo Ramirez

    (Nova School of Business and Economics)

Abstract

Variations in repo haircuts play a crucial role in leveraging (or deleveraging) in security markets, as observed in the two major economic events that happened so far in this century, the US housing bubble that burst into the great recession and the European sovereign debts episode. Repo trades are secured but recourse loans. Default triggers insolvency. Collateral may be temporarily exempt from automatic stay but creditors' nal reimbursement depends on the bankruptcy outcome. We address existence of bankruptcy equilibria, characterize it and infer how haircuts are related to asset or counterparty risks.

Suggested Citation

  • Jean-Marc Bottazzi & Mario Pascoa & Guillermo Ramirez, 2017. "Determinants of Repo Haircuts and Bankruptcy," School of Economics Discussion Papers 0717, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0717
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    File URL: https://repec.som.surrey.ac.uk/2017/DP07-17.pdf
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    Cited by:

    1. Jean-Marc Bottazzi & Mário Páscoa & Guillermo Ramírez, 2017. "Do Security Prices Rise or Fall When Margins Are Raised?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01648215, HAL.
    2. Miguel Fernandes & Mario Pascoa, 2024. "Repo, Sponsored Repo and Macro-prudential Regulation," School of Economics Discussion Papers 0224, School of Economics, University of Surrey.
    3. Jean-Marc Bottazzi & Mario R. Pascoa & Guillermo Ramirez, 2017. "Do security prices rise or fall when margins are raised?," Nova SBE Working Paper Series wp616, Universidade Nova de Lisboa, Nova School of Business and Economics.
    4. Jean-Marc Bottazzi & Mário Páscoa & Guillermo Ramírez, 2017. "Do Security Prices Rise or Fall When Margins Are Raised?," Working Papers hal-01648215, HAL.

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