Primary Dealers During the 2007-08 Crisis: Assessing Risks and Vulnerabilities

44 Pages Posted: 28 Oct 2018 Last revised: 21 Jul 2019

Date Written: July 19, 2019

Abstract

We study key vulnerabilities of the US Primary Dealers during the 2007-08 financial crisis. Dealers’ exposure to risky assets drives the repo run; importantly, repos become sensitive to counterparty risk only at the height of the crisis. Further, the way in which dealers use repo funding exposes them to several risks: financing illiquid assets with overnight repos exposes dealers to significant fire-sale risk; dealers are also exposed to rollover risk due to the maturity mismatch they take when intermediating credit to clients. Finally, we show how quickly illiquidity can spread across dealers, via chains of settlement fails.

Keywords: Financial Intermediation, Primary Dealers, Financial Crisis, Repos

JEL Classification: G01, G10, G20

Suggested Citation

Macchiavelli, Marco, Primary Dealers During the 2007-08 Crisis: Assessing Risks and Vulnerabilities (July 19, 2019). Available at SSRN: https://ssrn.com/abstract=3260212 or http://dx.doi.org/10.2139/ssrn.3260212

Marco Macchiavelli (Contact Author)

Isenberg School of Management ( email )

Amherst, MA 01003
United States

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

Paper statistics

Downloads
101
Abstract Views
894
Rank
476,054
PlumX Metrics