Collateral Cycles

Evangelos Benos, Gerardo Ferrara and Angelo Ranaldo
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Evangelos Benos: University of Nottingham

No 22-91, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using supervisory data from UK clearinghouses (CCPs), we document the presence of a collateral cycle in which cash goes back and forth from financial markets to CCPs. In the onward phase, clearing members provide cash to CCPs to meet margin requirements. This pattern is procyclical as the pledged collateral increases with market volatility and puts upward pressure on repurchase agreement (repo) rates. In the backward phase, CCPs return the cash to the financial markets via reverse repos and bond purchases, in compliance with regulation that requires them to collateralise their cash holdings. The cash given back by CCPs generates downward pressure on repo rates in a counter-cyclical manner.

Keywords: Central clearing; margin procyclicality; repo rates (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2022-12
New Economics Papers: this item is included in nep-ban and nep-rmg
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Related works:
Working Paper: Collateral cycles (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2291

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