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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Regulatory and Monetary Policy Nexus in the Repo Market
Sriya Anbil
Zeynep Senyuz
Abstract

We examine the interaction of regulatory reforms and changes in monetary policy in the U.S. repo market. Using a proprietary data set of repo transactions, we find that differences in regional implementation of Basel III capital reforms intensified European dealers' window-dressing by 80%. Money funds eligible to use the Fed's reverse repo (RRP) facility cut their private lending almost by half and instead lent to the Fed when European dealers withdraw, contributing to smooth implementation of Basel III. In a difference-in-differences setting, we show that ineligible funds lent 15% less to European dealers as they find their withdrawal for reporting purposes inconvenient. We find that intermediation through the RRP led to quantity and not pricing adjustments in the market, which is consistent with the RRP facility anchoring market rates.


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Sriya Anbil & Zeynep Senyuz, The Regulatory and Monetary Policy Nexus in the Repo Market, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-027, 17 Apr 2018.
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Keywords: Basel III regulations ; Federal Reserve Board and Federal Reserve System ; Monetary policy ; Repo ; Reverse repo facility
DOI: 10.17016/FEDS.2018.027
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