Implementing repurchase agreements in emerging markets

William P. Osterberg

MPRA Paper from University Library of Munich, Germany

Abstract: Repurchase Agreements (repos) have received increasing scrutiny as a result of their involvement in the recent financial crisis. While viewed as an important part of the ‘shadow banking system’ allowing non-banks to access liquidity and expand leverage, the legal and accounting status of most ‘repos’ is still unclear. Meanwhile, the usage of ‘repos’ in the development of emerging financial markets continues to expand, playing a pivotal role in monetary operations and fixed income markets. In this briefing, I discuss the main issues surrounding ‘repos’ in relatively undeveloped markets (EMs1) including the legal status of the first leg of the ‘repo’ as a true sale and the distinction between ‘repos’ and ‘sell-buybacks.’ I also discuss aspects of EMs that are relevant to the adoption of ‘repos.’ Primary among these is the thinness of markets, the legal status of ‘repos,’ accounting practices, monetary policy. Recommendations are offered regarding specific issues common to these countries.

Keywords: Repurchase agreement; Collateralized loan; Market thinness; Treasuries; Margining; Counterparty risk; Liquidity ratios; Sell-buyback (search for similar items in EconPapers)
JEL-codes: G18 O16 O17 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-mon
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Published in Aestimatio. The IEB International Journal of Finance 2 (2011): pp. 1-12

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