A Proposal for the Resolution of Systemically Important Assets and Liabilities: The Case of the Repo Market

45 Pages Posted: 27 Mar 2012

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

T. Sabri Oncu

Öncü Academy

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2012

Abstract

One of the several regulatory failures behind the global financial crisis that started in 2007 has been the regulatory focus on individual, rather than systemic, risk of financial institutions. Focusing on systemically important assets and liabilities (SIALs) rather than individual financial institutions, we propose a set of resolution mechanisms, which is not only capable of inducing market discipline and mitigating moral hazard, but also capable of addressing the associated systemic risk, for instance, due to the risk of fire sales of collateral assets. Furthermore, because of our focus on SIALs, our proposed resolution mechanisms would be easier to implement at the global level compared to mechanisms that operate at the level of individual institutional forms. We, then, outline how our approach can be specialized to the repo market and propose a repo resolution authority for reforming this market.

Keywords: systemic risk, fire sales, runs, crises, macroprudential regulation, resolution authority, sale and repurchase agreements

JEL Classification: G01, G28, E58

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Oncu, T. Sabri, A Proposal for the Resolution of Systemically Important Assets and Liabilities: The Case of the Repo Market (March 24, 2012). Available at SSRN: https://ssrn.com/abstract=2028480 or http://dx.doi.org/10.2139/ssrn.2028480

Viral V. Acharya (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

T. Sabri Oncu

Öncü Academy ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
211
Abstract Views
1,437
Rank
258,231
PlumX Metrics