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Repo Runs

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  • Martin, A.
  • Skeie, D.
  • von Thadden, E.L.

Abstract

This paper develops a dynamic model of financial institutions that borrow short-term and invest into long-term marketable assets. Because such intermediaries performmaturity transformation, they are subject to potential runs. We derive distinct liquidity and collateral constraints that characterize the fragility of such institutions as a result of changing market expectations. The liquidity constraint depends on the intermediary’s endogenous liquidity position that acts as a buffer against runs. The collateral constraint depends crucially on the microstructure of particular funding markets that we examine in detail. In particular, our model provides insights into the fragility and differences of the tri-party repo market and the bilateral repo market that were at the heart of the recent financial crisis.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Martin, A. & Skeie, D. & von Thadden, E.L., 2010. "Repo Runs," Discussion Paper 2010-44S, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:e14f6c26-c077-46fb-92a8-86d603625a7f
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Investment banking; securities dealers; repurchase agreements; tri-party repo; runs; financial fragility;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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