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Regulatory effects on short-term interest rates

Angelo Ranaldo (), Patrick Schaffner () and Michalis Vasios
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Patrick Schaffner: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 801, Bank of England working papers from Bank of England

Abstract: We analyse the effects of EMIR and Basel III regulations on short-term interest rates. EMIR requires central clearing houses (CCP) to continually acquire safe assets, thus expanding the lending supply of repurchase agreements (repo). Basel III, in contrast, disincentivises the borrowing demand by tightening banks’ balance sheet constraints. Using unique datasets of repo transactions and CCP activity, we find compelling evidence for both supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences originated from the new regulatory framework.

Keywords: Repo; central clearing; financial infrastructure; leverage ratio; EMIR; regulatory effects (search for similar items in EconPapers)
JEL-codes: G28 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2019-05-31
New Economics Papers: this item is included in nep-ban and nep-mon
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Journal Article: Regulatory effects on short-term interest rates (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0801

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