Working Paper Revision

What Drives U.S. Treasury Re-use?

Abstract: We study what drives the re-use of U.S. Treasury securities in the financial system. Using confidential supervisory data, we estimate the degree of collateral re-use at the dealer level through their collateral multiplier : the ratio between a dealer's total secured funding and their outright holdings financed through secured funding. We find that Treasury re-use increases as the supply of available securities decreases, especially when supply declines due to Federal Reserve asset purchases. We also find that non-U.S. dealers' re-use increases when profits from intermediating cash are high, U.S. dealers' re-use increases when demand to source on-the-run Treasuries is high, and both types of dealers' re-use can alleviate safe asset scarcity. Finally, we document a sharp drop in Treasury re-use at the onset of the COVID-19 pandemic, with a subsequent reversal after the Federal Reserve's intervention to support market functioning.

Keywords: re-use; dealer; Treasury; collateral; rehypothecation; safe assets;

JEL Classification: E41; E51; E58; E63; G12; G24;

https://doi.org/10.17016/FEDS.2020.103r1

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2021-08-24

Number: 2020-103r1

Related Works

• Working Paper Revision (2021-08-24) : You are here.
• Working Paper Original (2020-12-18) : What Drives U.S. Treasury Re-use?