Regulatory Incentives and Quarter-End Dynamics in the Repo Market
Abstract: Since the global financial crisis, central bankers and other prudential authorities have been working to design and implement new banking regulations, known as Basel III, to reduce risk in the financial sector. Although most features of the Basel III regime are implemented consistently across jurisdictions, some important details vary. In particular, banks headquartered in the euro area, Switzerland, and Japan report their leverage ratios?essentially, capital divided by total consolidated assets?as a snapshot of their value on the last day of the quarter. In contrast, institutions headquartered in the United States and the United Kingdom report most leverage ratio components as averages of their daily values over the quarter. In this post, we study the impact of this difference in regulatory implementation on rates and quantities borrowed in the U.S. repo market.
JEL Classification: G1;
File(s): File format is text/html https://libertystreeteconomics.newyorkfed.org/2017/08/regulatory-incentives-and-quarter-end-dynamics-in-the-repo-market.html
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2017-08-07