Balance-Sheet Netting in U.S. Treasury Markets and Central Clearing

David Bowman, Yesol Huh and Sebastian Infante
Additional contact information
David Bowman: https://www.federalreserve.gov/econres/david-bowman.htm
Yesol Huh: https://www.federalreserve.gov/econres/yesol-huh.htm
Sebastian Infante: https://www.federalreserve.gov/econres/sebastian-infante.htm

No 2024-057, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In this paper, we provide a comprehensive investigation of the potential for expanded central clearing to reduce the costs of the supplementary leverage ratio (SLR) on Treasury market intermediation in both cash and repo markets. Combining a detailed analysis of the rules involved in calculating the SLR with a unique set of regulatory data, we conclude that expanding central clearing would have relatively limited effects on the level of SLRs. We do find intermediaries’ increase their balance sheet netting when their regulatory balance sheet costs are higher. Our data permits us to establish a number of empirical facts related to the noncentrally cleared bilateral (NCCB) repo segment, and to repo activity overall, at the bank holding company level. We find that sizeable amounts of bilaterally-cleared activity would not be nettable even if centrally cleared. We also find that a significant portion of activity is already nettable outside of central clearing because dealers are structuring their NCCB trades to net. While expanded central clearing could have other benefits, such as imposing a more uniform margin regime on Treasury market intermediation, the scope of its effects on reducing balance sheet costs associated with the leverage ratio is limited.

Keywords: Treasury securities; Supplementary leverage ratio; Central clearing; Netting (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 30 p.
Date: 2024-07-18
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2024057pap.pdf (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:fip:fedgfe:2024-57

DOI: 10.17016/FEDS.2024.057

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().