Abstract

http://ssrn.com/abstract=2028480
 


 



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


Viral V. Acharya


New York University - Leonard N. Stern School of Business; Centre for International Finance and Regulation (CIFR); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

T. Sabri Oncu


Centre for Advanced Financial Research and Learning, Reserve Bank of India; NYU, Stern School of Business

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.

Number of Pages in PDF File: 45

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

JEL Classification: G01, G28, E58

working papers series


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Date posted: March 27, 2012  

Suggested Citation

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: http://ssrn.com/abstract=2028480 or http://dx.doi.org/10.2139/ssrn.2028480

Contact Information

Viral V. Acharya (Contact Author)
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm
Centre for International Finance and Regulation (CIFR) ( email )
Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
T. Sabri Oncu
Centre for Advanced Financial Research and Learning, Reserve Bank of India ( email )
RBI, C-8, Bandra Kurla Complex
Bandra East
Mumbai, Maharashtra 400 051
India
NYU, Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
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