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Keywords:Repurchase agreements 

Discussion Paper
The Odd Behavior of Repo Haircuts during the Financial Crisis

Since the financial crisis began, there’s been substantial debate on the role of haircuts in U.S. repo markets. (The haircut is the value of the collateral in excess of the value of the cash exchanged in the repo; see our blog post for more on repo markets.) In an influential paper, Gorton and Metrick show that haircuts increased rapidly during the crisis, a phenomenon they characterize as a general “run on repo.” Consequently, some policymakers and academics have considered whether regulating haircuts might help stabilize the repo markets, for example, by setting a minimum level so ...
Liberty Street Economics , Paper 20120917

Report
The tri-party repo market before the 2010 reforms

This paper provides a descriptive and quantitative account of the tri-party repo market before the reforms proposed in 2010 by the Task Force on Tri-Party Repo Infrastructure (Task Force 2010). We provide an extensive description of the mechanics of this market. We also use data from July 2008 to early 2010 to document quantitative features of the market. We find that both the level of haircuts and the amount of funding were surprisingly stable in this market. The stability of the margins is in contrast to evidence from other repo markets. Perhaps surprisingly, the data reveal relatively few ...
Staff Reports , Paper 477

Report
Repo market effects of the Term Securities Lending Facility

The Term Securities Lending Facility (TSLF) was introduced by the Federal Reserve to promote liquidity in the financing markets for Treasury and other collateral. We evaluate one aspect of the program--the extent to which it has narrowed repo spreads between Treasury collateral and less liquid collateral. We find that TSLF operations have precipitated a significant narrowing of repo spreads. More refined tests indicate the market conditions and types of operations associated with the program's effectiveness. Various additional tests, including a split-sample test, suggest that our findings ...
Staff Reports , Paper 426

Report
Expected repo specialness costs and the Treasury auction cycle

Repo rates for the most recently issued or "on-the-run" securities often diverge from general repo rates. The purpose of this study is to convey that relatively sizable divergences in repo rates for on-the-run issues are normal repeating events for the Treasury market, rather than evidence of abnormal circumstances. The costs associated with these repo market premia are small for short holding periods and are sometimes offset by gains from declining cash market premia for longer holding periods. Moreover, repo specialness costs seem small when considered against the alternative of not ...
Research Paper , Paper 9504

Report
Buybacks in Treasury cash and debt management

This paper examines the use of buybacks in Treasury cash and debt management. We review the mechanics and results of the buyback operations conducted in 2000-01, during a time of budget surpluses, and assess the prospective use of buybacks in the absence of a surplus. Possible future applications include (i) managing the liquidity of the new-issue markets when deficits are declining (by allowing Treasury officials to postpone a decision to discontinue a series without also being compelled to shrink new-issue sizes); (ii) actively promoting the liquidity of the new-issue markets (by ...
Staff Reports , Paper 304

Working Paper
Bank size, collateral, and net purchase behavior in the federal funds market: empirical evidence a note

Working Papers , Paper 87-12

Report
Liquidity and leverage

In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, prompting financial intermediaries to adjust the size of their balance sheets. We present evidence that marked-to-market leverage is strongly procyclical and argue that such behavior has aggregate consequences. Changes in dealer repurchase agreements (repos) -the primary margin of adjustment for the aggregate balance sheets of intermediaries - forecast changes in financial market risk as measured by the innovations in the Chicago Board Options ...
Staff Reports , Paper 328

Journal Article
Regulation’s role in bank changes

This is the first article in a series which explores the changing role of banks in the financial intermediation process. It accompanies a Liberty Street Blog series. Both discuss the complexity of the credit intermediation chain associated with securitization and note the growing participation of nonbank entities within it. These series also discuss implications for monitoring and rulemaking going forward. In the article, the author argues that government involvement has been a significant factor in financial innovation and describes a number of the regulatory, legal, and policy decisions ...
Economic Policy Review , Issue Jul , Pages 13-20

Journal Article
An examination of Treasury term investment interest rates

In November 2003, the Term Investment Option (TIO) program became an official cash management tool of the U.S. Treasury Department. Through TIO, the Treasury lends funds to banks for a set number of days at an interest rate determined by a single-rate auction. One reason why the Treasury introduced TIO was to try to earn a market rate of return on its excess cash balances. This article studies 166 TIO auctions from November 2003 to February 2006 to determine how TIO interest rates have compared with market rates. The author investigates the spread between TIO rates and rates on ...
Economic Policy Review , Volume 13 , Issue Mar , Pages 19-32

Report
How do stock repurchases affect bank holding company performance?

Using data from bank holding company regulatory reports, we examine the relationship between stock repurchases and financial performance for a large sample of bank holding companies over the years 1987 to 1998. The primary result is that higher levels of repurchases in one year are associated with higher profitability and a lower share of problem loans in the subsequent year. This finding is robust to several different ways of measuring share repurchase activity. Our results appear to be driven primarily by bank holding companies with publicly traded stock, especially those companies whose ...
Staff Reports , Paper 123

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