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Keywords:repurchase agreements 

Journal Article
Repurchase agreements with negative interest rates

Contrary to popular belief, interest rates can drop below zero. From early August to mid-November of 2003, negative rates occurred on certain U.S. Treasury security repurchase agreements. An examination of the market conditions behind this development reveals why market participants are sometimes willing to pay interest on money lent.
Current Issues in Economics and Finance , Volume 10 , Issue Apr

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
Explaining the U.S. tri-party repo market

During the 2007-09 financial crisis, it became apparent that weaknesses existed in the design of the U.S. tri-party repo market that could rapidly elevate and propagate systemic risk. This article describes key mechanics of the market, focusing on two that have contributed to its weaknesses and impacted market reform efforts: the collateral allocation and ?unwind? processes. The authors explain that collateral allocation in the tri-party repo market involves considerable dealer intervention, which can slow settlement processing. The length of time required to allocate collateral has in fact ...
Economic Policy Review , Volume 18 , Issue Nov , Pages 17-28

Journal Article
Trading risk, market liquidity, and convergence trading in the interest rate swap spread

While trading activity is generally thought to play a central role in the self-stabilizing behavior of markets, the risks in trading on occasion can affect market liquidity and heighten asset price volatility. This article examines empirical evidence on the limits of arbitrage in the interest rate swap market. The author finds both stabilizing and destabilizing forces attributable to leveraged trading activity. Although the swap spread tends to converge to its fundamental level, it does so more slowly or even diverges from its fundamental level when traders are under stress, as indicated by ...
Economic Policy Review , Volume 12 , Issue May , Pages 1-13

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

Journal Article
The evolution of repo contracting conventions in the 1980s

Contracting conventions for repurchase agreements, or repos, changed significantly in the 1980s. The growth of the repo market, new uses for repos, and the emergence of new and previously unappreciated risks prompted market participants to revise their contracting conventions. This article describes the evolution of the conventions during that period, focusing on three key developments: the recognition of accrued interest on repo securities, a change in the application of federal bankruptcy law to repos, and the accelerated growth of a new form of repo-tri-party repo. The author argues that ...
Economic Policy Review , Volume 12 , Issue May , Pages 27-42

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 that ...
Liberty Street Economics , Paper 20120917

Speech
Preparing for a smooth (eventual) exit

Remarks at the National Association for Business Economics Policy Conference, Arlington, Virginia
Speech , Paper 17

Speech
Introductory remarks at Workshop on \\"Fire Sales\\" as a Driver of Systemic Risk in Tri-Party Repo and Other Secured Funding Markets

Remarks at Workshop on "Fire Sales" as a Driver of Systemic Risk in Tri-Party Repo and Other Secured Funding Markets, Federal Reserve Bank of New York, New York City.
Speech , Paper 118

Speech
What the Fed did and why

Remarks at the Westchester County Bankers Association, Tarrytown, New York.
Speech , Paper 27

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