(In)efficient repo markets

Schürhoff, Norman, Tobias Dieler and Loriano Mancini
Authors registered in the RePEc Author Service: Norman Schuerhoff

No 15782, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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)
Date: 2021-02
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: (In)efficient repo markets (2021)
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