The fundamental role of the repo market and central clearing

Cristina Di Luigi (), Antonio Perrella () and Alessio Ruggieri ()
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Cristina Di Luigi: Bank of Italy
Antonio Perrella: Bank of Italy
Alessio Ruggieri: Bank of Italy

No 48, Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) from Bank of Italy, Directorate General for Markets and Payment System

Abstract: The repo market plays a crucial role in terms of central bank policies and of the funding of the banking system. In this paper, after reviewing the different economic functions of repo contracts, we provide an overview of the structure of government bond repo markets in core advanced economies. We then analyse the main drivers of euro-area repo market dynamics in the last decade: collateral quality, excess liquidity and collateral scarcity, as well as regulatory reforms. Finally, we explore the role of central clearing services – whose extensive use can help increase the stability and efficiency of the repo market – and the impact of the development of new client clearing models in the repo market, arguing that greater use of these models may lead to greater market efficiency and resilience.

Keywords: repurchase agreements; leverage ratio; window dressing; central counterparties; client clearing; money market structure. (search for similar items in EconPapers)
JEL-codes: E40 E58 G15 G20 (search for similar items in EconPapers)
Date: 2024-07
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wpmisp:mip_048_24

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