Determinants of Repo Haircuts and Bankruptcy

Jean-Marc Bottazzi, Mario Pascoa and Guillermo Ramírez
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Jean-Marc Bottazzi: Paris School of Economics, Capula
Mario Pascoa: University of Surrey

No 717, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: Variations in repo haircuts play a crucial role in leveraging (or deleveraging) in security markets, as observed in the two major economic events that happened so far in this century, the US housing bubble that burst into the great recession and the European sovereign debts episode. Repo trades are secured but recourse loans. Default triggers insolvency. Collateral may be temporarily exempt from automatic stay but creditors' nal reimbursement depends on the bankruptcy outcome. We address existence of bankruptcy equilibria, characterize it and infer how haircuts are related to asset or counterparty risks.

Pages: 39 pages
Date: 2017-07
New Economics Papers: this item is included in nep-ban
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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0717

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