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How central is central counterparty clearing? A deep dive into a European repo market during the crisis

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  • Ebner, André
  • Fecht, Falko
  • Schulz, Alexander

Abstract

Repo markets offering central counterparty (CCP) clearing and anonymized trading were remarkably resilient during the recent crises. We use the full transaction level dataset on all repo trades on Eurex Repo, including identifiers for market participants, to provide a detailed description of the market's development and microstructure during the crises and under different monetary policy interventions. Overall, we find high excess liquidity being associated with lower private liquidity provision in this market. Cross-segment arbitrage and market making is limited but growing steadily. The reallocation of liquidity risk across banks within this market varies substantially with the general market conditions.

Suggested Citation

  • Ebner, André & Fecht, Falko & Schulz, Alexander, 2016. "How central is central counterparty clearing? A deep dive into a European repo market during the crisis," Discussion Papers 14/2016, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:142016
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    References listed on IDEAS

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    1. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
    2. Gara Afonso & Anna Kovner & Antoinette Schoar, 2011. "Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis," Journal of Finance, American Finance Association, vol. 66(4), pages 1109-1139, August.
    3. Dunne, Peter & Fleming, Michael J. & Zholos, Andrey, 2011. "Repo Market Microstructure in Unusual Monetary Policy Conditions," Research Technical Papers 8/RT/11, Central Bank of Ireland.
    4. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    5. Dunne, Peter G. & Fleming, Michael J. & Zholos, Andrey, 2013. "ECB monetary operations and the interbank repo market," Staff Reports 654, Federal Reserve Bank of New York.
    6. Adam Copeland & Antoine Martin & Michael Walker, 2014. "Repo Runs: Evidence from the Tri-Party Repo Market," Journal of Finance, American Finance Association, vol. 69(6), pages 2343-2380, December.
    7. Loriano Mancini & Angelo Ranaldo & Jan Wrampelmeyer, 2016. "The Euro Interbank Repo Market," Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1747-1779.
    8. Peter Hördahl & Michael R King, 2008. "Developments in repo markets during the financial turmoil," BIS Quarterly Review, Bank for International Settlements, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    repo; central counterparty; market microstructure; financial crisis;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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