The Euro Interbank Repo Market

The search for a market design that ensures stable bank funding is at the top of regulators' policy agenda. This paper empirically shows that the central counterparty (CCP)-based euro interbank repo market features this stability. Using a unique and comprehensive data set, we show that the market is resilient during crisis episodes and may even act as a shock absorber, in the sense that repo lending increases with risk, while spreads, maturities, and haircuts remain stable. Our comparison across different repo markets shows that anonymous CCP-based trading, safe collateral, and the absence of an unwind mechanism are the key characteristics to ensure market resilience. (JEL E43, E58, G01, G12, G21, G28)


Published in:
Review Of Financial Studies, 29, 7, 1747-1779
Year:
2016
Publisher:
Cary, Oxford University Press
ISSN:
0893-9454
Laboratories:




 Record created 2016-10-18, last modified 2018-03-17


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