Safe asset shortage and collateral reuse

Stephan Jank, Emanuel Mönch and Michael Schneider
Authors registered in the RePEc Author Service: Emanuel Moench

No 355, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: The reuse of collateral can support the efficient allocation of safe assets in the financial system. Exploiting a novel dataset, we show that banks substantially increase their reuse of sovereign bonds in response to scarcity induced by Eurosystem asset purchases. While repo rates react little to purchase-induced scarcity when reuse is low, they become increasingly sensitive at high levels of reuse. An elevated reuse rate is also associated with more failures to deliver and a higher volatility of repo rates in the cross-section of bonds. Our results highlight the trade-off between shock absorption and shock amplification effects of collateral reuse.

Keywords: safe assets; government bonds; collateral reuse; rehypothecation; repo market; securities lending (search for similar items in EconPapers)
JEL-codes: E4 E5 G1 G2 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Safe asset shortage and collateral reuse (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:355

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