Repo transaction costs and balance sheet frictions

Yanis Belkacem, Fabienne Schneider and Adrian Walton

No 2026-10, Staff Analytical Papers from Bank of Canada

Abstract: We develop an approach to quantify transaction costs in the repo market using OTC transaction data, where quoted bid-ask spreads are not observable. By estimating effective spreads at the level of individual trades, we construct a novel metric to evaluate intermediation costs across different segments of the market. Effective spreads function as a high-frequency gauge of market conditions and functioning. They are particularly informative about balance sheet pressures, as reflected in recurring year-end spikes and elevated levels during the early stages of the COVID-19 pandemic. They offer complementary information to cash market spreads and provide a useful tool for further analysis of monetary policy transmission and the behavior of market participants.

Keywords: Financial markets and funds management; Financial system; Financial institutions and intermediation; Financial stability and systemic risk (search for similar items in EconPapers)
JEL-codes: G10 G12 G20 (search for similar items in EconPapers)
Date: 2026-03
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsap:26-10

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