Analysis of Risk Factors in the Korean Repo Market: Based on the US and European Repo Market Experiences

Sung-guan Yun () and Ronald Heijmans ()
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Sung-guan Yun: Payment Systems Research Team, Payment & Settlement Systems Department, The Bank of Korea
Ronald Heijmans: Oversight Department, Cash and Payment Systems Division, De Nederlandsche Bank

No 2013-29, Working Papers from Economic Research Institute, Bank of Korea

Abstract: Repo markets had been deemed more resilient against market instability compared to the unsecured inter-bank loan markets. In the US and Europe, however, prolonged investor runs on repos developed during the global financial crisis. Furthermore, in the course of the evolution of the crisis, the repo markets in the US and Europe showed differing movements. In contrast, no risks arising from the Korean repo market have yet emerged in practice thanks in part to its small market volume during the global financial crisis, but it could give rise to significant risks due to some fragility arising from factors such as the increase of trade concentration. For this reason, we wish to identify some weak points, and suggest some areas for improvement such as a ceiling on the amount of borrowing, and on the proportion of illiquid collateral held by investors. In addition, we discuss the need for the greater differentiation of margin, and for the extension of the intraday repo facility to the repo market.

Keywords: Clearing; Repo; Settlement risk; OTC bonds (search for similar items in EconPapers)
JEL-codes: E42 G23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013-12-31
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Citations: View citations in EconPapers (2)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2013-29.pdf Working Paper, 2013 (application/pdf)

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