RepoMech: A Method to Reduce the Balance-Sheet Impact of Repo Intermediation

Daniel J. Aronoff, Robert M. Townsend and Madars Virza

Papers from arXiv.org

Abstract: A repo trade involves the sale of a security coupled with a contract to repurchase at a later time. Following the 2008 financial crisis, accounting standards were updated to require repo intermediaries, who are mostly banks, to increase recorded assets at the time of the first transaction. Concurrently, US bank regulators implemented a supplementary leverage ratio constraint that reduces the volume of assets a bank is allowed record. The interaction of the new accounting rules and bank regulations limits the volume of repo trades that banks can intermediate. To reduce the balance-sheet impact of repo, the SEC has mandated banks to centrally clear all Treasuries trades. This achieves multilateral netting but shifts counterparty risk onto the clearinghouse, which can distort monitoring incentives and raise trading cost through the imposition of fees. We present RepoMech, a method that avoids these pitfalls by multilaterally netting repo trades without altering counterparty risk.

Date: 2025-12
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2512.23842 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2512.23842

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().