Search Results
Working Paper
Overnight RRP Operations as a Monetary Policy Tool: Some Design Considerations
We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors, including nonbank institutions that are significant lenders in money markets, could complement the use of the interest on excess reserves (IOER) and help control short-term interest rates. We examine some potentially important secondary effects of an ON RRP facility, both positive and negative, including ...
Report
Repo and securities lending
We provide an overview of the data required to monitor repo and securities lending markets for the purposes of informing policymakers and researchers about firm-level and systemic risk. We start by explaining the functioning of these markets and argue that it is crucial to understand the institutional arrangements. Data collection is currently incomplete. A comprehensive collection would include, at a minimum, six characteristics of repo and securities lending trades at the firm level: principal amount, interest rate, collateral type, haircut, tenor, and counterparty.
Report
Reference guide to U.S. repo and securities lending markets
This paper is intended to serve as a reference guide on U.S. repo and securities lending markets. It begins by presenting the institutional structure, and then describes the market landscape, the role of the participants, and other characteristics, including how repo and securities lending activity has changed since the 2007-09 financial crisis. The paper then discusses vulnerabilities in the repo and short-term wholesale funding markets and the efforts to limit potential systemic risks. It next provides an overview of existing data sources on securities financing markets and highlights ...
Report
Repo Intermediation and Central Clearing: An Analysis of Sponsored Repo
This paper evaluates the salient forces behind a dealer-intermediary’s decision to move a bilateral repo transaction with a customer into central clearing. We provide evidence that dealers turn to sponsored repo on occasions when balance sheet space is scarce, such as when there is a large issuance of Treasury coupon securities and end-of-month dates. We also find that sponsored repo spreads tend to be affected by a range of factors, with the three largest drivers being money market fund assets, a proxy for hedge fund demand for repo funding, and end-of-month dates.
Proportionate margining for repo transactions
Traders in the repurchase agreement (repo) market protect themselves from the default of their counterparties through margin collected via haircuts on repo transactions. Recent research showing that haircuts on many Treasury repo transactions are low or zero has raised concerns that margining practices in this market are insufficiently strict.
Report
Overnight RRP operations as a monetary policy tool: some design considerations
We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors, including nonbank institutions that are significant lenders in money markets, could complement the use of the interest on excess reserves (IOER) and help control short-term interest rates. We examine some potentially important secondary effects of an ON RRP facility, both positive and negative, including ...
Discussion Paper
Are New Repo Participants Gaining Ground?
Following the 2007-09 financial crisis, regulations were introduced that increased the cost of entering into repurchase agreements (repo) for bank holding companies (BHC). As a consequence, banks and securities dealers associated with BHCs, a set of firms which dominates the repo market, were predicted to pull back from the market. In this blog post, we examine whether this changed environment allowed new participants, particularly those not subject to the new regulations, to emerge. We find that although new participants have come on the scene and made gains, they remain a small part of the ...
Discussion Paper
Intraday Timing of General Collateral Repo Markets
Market participants have often noted that general collateral (GC) repo trades happen very early in the morning, with most activity being completed soon after markets open at 7 a.m. Data on intraday repo volumes timing are not publicly available however, obscuring those dynamics to outside observers. In this post, we use confidential data collected by the Office of Financial Research (OFR) to describe the intraday timing dynamics of GC repo in the interdealer market. We demonstrate that a significant majority of interdealer overnight Treasury repo is completed prior to 8:30 a.m. (all times ...
Journal Article
The Fed and Its Shadow: A Historical View
Central bank policies have always incorporated both a discretionary or active component and a passive component. Successful central banking has required a coordination of the two components. After a period of apparent dormancy, the passive component of monetary policy has emerged from the shadows and become relevant for Federal Reserve policy today.
Discussion Paper
How Competitive are U.S. Treasury Repo Markets?
The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding portion of the repo market is competitive by demonstrating that trading is not concentrated overall and explaining how the pricing of inter-dealer repo trades is available to a wide range of market participants. By ...