(In)efficient repo markets

Tobias Dieler, Loriano Mancini and Norman Schürhoff
Additional contact information
Tobias Dieler: University of Bristol - Department of Finance and Accounting
Loriano Mancini: USI Lugano - Institute of Finance; Swiss Finance Institute
Norman Schürhoff: University of Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)
Authors registered in the RePEc Author Service: Norman Schuerhoff

No 21-10, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Repo markets trade off the efficient allocation of liquidity in the financial sector with resilience to funding shocks. The repo trading and clearing mechanisms are crucial determinants of the allocation-resilience tradeoff. The two common mechanisms, anonymous central-counterparty (CCP) and non-anonymous over-the-counter (OTC) markets, are inefficient and their welfare rankings depend on funding tightness. CCP (OTC) markets inefficiently liquidate high (low) quality assets for large (small) funding shocks. Two innovations to repo market design contribute to maximize welfare: a liquidity-contingent trading mechanism and a two-tiered guarantee fund.

Keywords: repo market; funding run; financial stability; asymmetric information; central clearing; novation; guarantee fund; collateral (search for similar items in EconPapers)
JEL-codes: G01 G14 G21 G28 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2021-02
New Economics Papers: this item is included in nep-des, nep-fmk and nep-mst
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: (In)efficient repo markets (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2110

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