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Author:Infante, Sebastian 

Discussion Paper
What Makes a Safe Asset Safe?

Over the last decade, the concept of ?safe assets? has received increasing attention, from regulators and private market participants, as well as researchers. This attention has led to the uncovering of some important details and nuances of what makes an asset ?safe? and why it matters. In this blog post, we provide a review of the different aspects of safe assets, discuss possible reasons why they may be beneficial for investors, and give concrete examples of what these assets are in practice.
Liberty Street Economics , Paper 20171127

Working Paper
Bond Market Intermediation and the Role of Repo

This paper models the important role that repurchase agreements (repos) play in bond market intermediation. Not only do repos allow dealers to finance their activities, but they also increase dealers' ability to satisfy levered client demands without having to adjust their holdings of risky assets. In effect, the ability to borrow specific assets for delivery allows dealers to source large quantity of assets without taking ownership of them. Larger levered client orders imply larger asset borrowing demands, thus increasing the borrowing cost for the asset (i.e., repo specialness). Dealers ...
Finance and Economics Discussion Series , Paper 2017-003

Working Paper
Private Money Creation with Safe Assets and Term Premia

It has been documented that an increase in the demand for safe assets induces the private sector to create more money-like claims. Focusing on private repos backed by U.S. Treasury securities, I show that an increase in the demand for safe assets leads to a decreases in the issuance of Treasury repos. The intuition is that Treasury securities already function as a safe asset, thus in terms of safe asset creation, private Treasury repos are neutral. In the model, Treasury repos are beneficial because they shift risk (i.e. term premia) from relatively risk averse households to a more risk ...
Finance and Economics Discussion Series , Paper 2017-041

Working Paper
Collateral Runs

This paper models an unexplored source of liquidity risk faced by large broker-dealers: collateral runs. By setting different contracting terms on repurchase agreements with cash borrowers and lenders, dealers can source funds for their own activities. Cash borrowers internalize the risk of losing their collateral in case their dealer defaults, prompting them to withdraw it. This incentive creates strategic complementarities for counterparties to withdraw their collateral, reducing a dealer's liquidity position and compromising her solvency. Collateral runs are markedly different than ...
Finance and Economics Discussion Series , Paper 2018-022

Working Paper
Repo collateral fire sales: the effects of exemption from automatic stay

What are the consequences of a potential fire sale stemming from the exemption of repurchase agreements (repos) from automatic stay? This paper shows that repo's exemption from stay alters firms' financing and investment decisions ex ante. Specifically, a stay exemption changes firms' investment opportunity set, enabling them to purchase assets of defaulted firms at fire sale prices. Fire sales arise endogenously because of limited capital available to purchase collateral posted by insolvent firms, i.e., cash-in-the-market pricing. A fire sale effectively creates a premium for holding on to ...
Finance and Economics Discussion Series , Paper 2013-83

Working Paper
Liquidity Windfalls: The Consequences of Repo Rehypothecation

This paper presents a model of repo rehypothecation in which dealers intermediate funds and collateral between cash lenders (e.g., money market funds) and prime brokerage clients (e.g., hedge funds). Dealers take advantage of their position as intermediaries, setting different repo terms with each counterparty. In particular, the difference in haircuts represents a positive cash balance for the dealer that can be an important source of liquidity. The model shows that dealers with higher default risk are more exposed to runs by collateral providers than to runs by cash lenders, who are ...
Finance and Economics Discussion Series , Paper 2015-22

Discussion Paper
The Ins and Outs of Collateral Re-Use

In this article, we empirically document how primary dealers use and re-use collateral (that is, financial securities) in the United States.
FEDS Notes , Paper 2018-12-21-2

Discussion Paper
Monitoring Risk From Collateral Runs

We present an estimate of the total amount of funds primary dealers can access from the intermediation of cash and securities through secured funding transactions (SFTs). We highlight how this activity can introduce an additional source of risk: the abrupt withdrawal of cash borrowers, which we call collateral runs.
FEDS Notes , Paper 2020-07-31-2

Discussion Paper
Monitoring Risk From Collateral Runs

We present an estimate of the total amount of funds primary dealers can access from the intermediation of cash and securities through secured funding transactions (SFTs). We highlight how this activity can introduce an additional source of risk: the abrupt withdrawal of cash borrowers, which we call collateral runs.
FEDS Notes , Paper 2020-07-31-2

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