Collateral demand in wholesale funding markets

Jamie Coen (), Patrick Coen () and Anne-Caroline Hüser ()
Additional contact information
Jamie Coen: Imperial College London
Patrick Coen: Toulouse School of Economics
Anne-Caroline Hüser: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 1082, Bank of England working papers from Bank of England

Abstract: Repo markets are systemically important funding markets, but are also used by firms to obtain the assets provided as collateral. Do these two functions complement each other? We build and estimate a model of repo trade between heterogeneous firms, and find that the answer is no: volumes and gains to trade would both be higher absent collateral demand. This is because on average the firms that need funding are also those that value the collateral to speculate or hedge interest rate risk. These results have implications for policies that affect collateral demand in repo markets, including rules on short selling.

Keywords: Repo; collateral demand; intermediation; financial crises (search for similar items in EconPapers)
JEL-codes: G01 G11 G21 G23 L14 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2024-08-06
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1082

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