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Working Paper
What Drives U.S. Treasury Re-use?
Infante, Sebastian; Saravay, Zack (2020-12-18)
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 secured funding and their outright holdings. 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 ...
Finance and Economics Discussion Series , Paper 2020-103

Working Paper
Why Rent When You Can Buy?
Monnet, Cyril; Narajabad, Borghan N. (2017-09-22)
Using a model with bilateral trades, we explain why agents prefer to rent the goods they can afford to buy. Absent bilateral trading frictions, renting has no role even with uncertainty about future valuations. With pairwise meetings, agents prefer to sell (or buy) durable goods whenever they have little doubt on the future value of the good. As uncertainty grows, renting becomes more prevalent. Pairwise matching alone is sufficient to explain why agents prefer to rent, and there is no need to introduce random matching, information asymmetries, or other market frictions.
Finance and Economics Discussion Series , Paper 2017-094

Journal Article
Case studies on disruptions during the crisis
Yorulmazer, Tanju (2014-02)
The 2007-09 financial crisis saw many funding mechanisms challenged by a drastic reduction in market liquidity, a sharp increase in the cost of transactions, and, in some cases, a drying-up in financing. This article presents case studies of several key financial markets and intermediaries under significant distress at this time. For each case, the author discusses the size and evolution of the funding mechanism, the sources of the disruptions, and the policy responses aimed at mitigating distress and making markets more liquid. The review serves as a reference on the vulnerabilities of ...
Economic Policy Review , Issue Feb , Pages 17-28

Working Paper
Liquidity Windfalls: The Consequences of Repo Rehypothecation
Infante, Sebastian (2015-03-30)
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
Are New Repo Participants Gaining Ground?
Copeland, Adam; Tarascina, Anya; Selig, Ira (2019-04-03)
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 ...
Liberty Street Economics , Paper 20190403

Journal Article
The Fed and Its Shadow: A Historical View
Kahn, Charles M.; Quinn, Stephen F.; Roberds, William (2023-10-02)
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.
Policy Hub , Volume 2023 , Issue 6 , Pages 32

Working Paper
Securities Financing and Asset Markets: New Evidence
Breach , Tomas; King, Thomas B. (2018-11-27)
This paper presents new evidence on bilateral securities financing based on the Federal Reserve's Senior Credit Officer Opinion Survey, which was launched in the wake of the financial crisis to provide a window into this otherwise opaque market. The survey asks large broker-dealers about terms at which they fund client positions, and the demand for such funding, across several different collateral types. Within asset classes, reported changes in spreads, haircuts, and other financing terms move closely together, and we show that they also covary with the state of the underlying cash ...
Working Paper Series , Paper WP-2018-22

Working Paper
Monetary Policy Implementation and Private Repo Displacement : Evidence from the Overnight Reverse Repurchase Facility
Kandrac, John; Anderson, Alyssa G. (2016-10-31)
In recent years, the scale and scope of major central banks' intervention in financial markets has expanded in unprecedented ways. In this paper, we demonstrate how monetary policy implementation that relies on such intervention in financial markets can displace private transactions. Specifically, we examine the experience with the Federal Reserve's newest policy tool, known as the overnight reverse repurchase (ONRRP) facility, to understand its effects on the repo market. Using exogenous variation in the parameters of the ONRRP facility, we show that participation in the ONRRP comes from ...
Finance and Economics Discussion Series , Paper 2016-096

Report
The use of collateral in bilateral repurchase and securities lending agreements
Cipriani, Marco; Copeland, Adam; Caglio, Cecilia R.; Baklanova, Viktoria (2016-01-01)
We use unique data from U.S. bank holding company-affiliated securities dealers to study the use of collateral in bilateral repurchase and securities lending agreements. Market participants? use of collateral differs substantially across asset classes: for U.S. Treasury securities transactions, we find that haircuts are large enough to provide full protection from default, whereas the same is not usually true for equities transactions. Further, although most of the equities in our sample are each associated with a unique haircut, most of the U.S. Treasury securities are each associated with ...
Staff Reports , Paper 758

Discussion Paper
Are Higher Haircuts Better? A Paradox
McAndrews, James J.; Martin, Antoine; McLaughlin, Susan; Begalle, Brian; Copeland, Adam (2013-08-19)
Repurchase agreement (repo) markets played an important role in the 2007-09 financial crisis in the United States, and much discussion since then has focused on the role of repo haircuts. A repo is essentially a loan collateralized by securities. Typically, the value of the securities exceeds the value of the loan and the amount of overcollateralization corresponds to the haircut. In a 2010 paper, Yale?s Gary Gorton and Andy Metrick identified a dramatic increase in haircuts in the bilateral segment of the repo market, which they interpreted as a run on repo. Separately, an industry task ...
Liberty Street Economics , Paper 20130819

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