A theory of repurchase agreements, collateral re-use, and repo intermediation
Piero; MAURIN, Vincent; MONNET, Cyril Gottardi,
Authors registered in the RePEc Author Service: Piero Gottardi () and
Cyril Monnet ()
No ECO2017/03, Economics Working Papers from European University Institute
We show that repurchase agreements (repos) arise as the instrument of choice to borrow in a competitive model with limited commitment. The repo contract traded in equilibrium provides insurance against fluctuations in the asset price in states where collateral value is high and maximizes borrowing capacity when it is low. Haircuts increase both with counterparty risk and asset risk. In equilibrium, lenders choose to re-use collateral. This increases the circulation of the asset and generates a “collateral multiplier" effect. Finally, we show that intermediation by dealers may endogenously arise in equilibrium, with chains of repos among traders
Keywords: Repos; Collateral re-use; Intermediation; Haircuts (search for similar items in EconPapers)
JEL-codes: G10 G21 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-ias
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Journal Article: A theory of repurchase agreements, collateral re-use, and repo intermediation (2019)
Working Paper: A Theory of Repurchase Agreements, Collateral Re-use, and Repo Intermediation (2017)
Working Paper: A Theory of Repurchase Agreement, Collateral Re-use, and Repo Intermediation (2016)
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