Regulatory Arbitrage in Repo Markets

Benjamin Munyan ()
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Benjamin Munyan: Vanderbilt University

No 15-22, Working Papers from Office of Financial Research, US Department of the Treasury

Abstract: Non-U.S. banks with relatively low capital ratios appear to temporarily remove an average of $170 billion from the U.S. market for tri-party repurchase agreements (repo) before each quarter-end in order to appear safer and less levered. This amount is more than double the $76 billion market-wide drop in tri-party repo during the turmoil of the 2008 financial crisis and represents about 10% of the entire tri-party repo market. Such window dressing-induced deleveraging spills over into agency bond markets and money market funds and affects market liquidity each quarter.

Keywords: Regulatory Arbitrage; Leverage Ratio; Short-Term Funding; Repurchase Agreements (search for similar items in EconPapers)
Pages: 57 pages
Date: 2015-10-29
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:ofr:wpaper:15-22

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