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Marriott Marquis, Grand Ballroom 10
American Economic Association
The Supply and Demand of Safe Assets
Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Andrew Metrick, Yale University
Understanding Collateral Re-use in the United States Financial System
AbstractWe empirically document how primary dealers use and re-use collateral in the United States. Using confidential supervisory data, we map how collateral flows to and from individual dealers through different contracts and identify whether the collateral is encumbered or rehypothecated. From these data we estimate the degree of collateral re-use at the dealer level. Focusing on U.S. Treasuries, we posit three possible drivers behind the high degree of re-use we observe: 1) intermediation of cash, 2) intermediation of collateral, and 3) "stripping" and distribution of the safe asset benefits of U.S. Treasuries. This work contributes to research aimed at understanding how collateral circulation improves market functioning by increasing collateral availability, but may lead to fragility by increasing interconnectedness.
Who Ran on Repo?
AbstractThe sale and repurchase (repo) market played a central role in the recent financial crisis. From the second quarter of 2007 to the first quarter of 2009, net repo financing provided to U.S. banks and broker-dealers fell by about $900 billion—more than half of its pre-crisis total. Significant details of this “run on repo” remain shrouded, because many of the providers of repo finance are lightly regulated or unregulated cash pools. Our analysis highlights the danger of relying exclusively on data from regulated institutions, which would miss the most important parts of the run.
Federal Reserve Board
- G2 - Financial Institutions and Services
- G1 - General Financial Markets