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Repo Runs

Review of Financial Studies 27, 4, 2014, 957-989

FRB of New York Staff Report No. 444

47 Pages Posted: 23 Apr 2010 Last revised: 22 Aug 2017

Antoine Martin

Federal Reserve Bank of New York - Research and Statistics

David R. Skeie

Texas A&M University - Mays Business School - Department of Finance

Ernst-Ludwig von Thadden

Universitaet Mannheim; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: September 15, 2010

Abstract

The recent financial crisis has shown that short-term collateralized borrowing may be highly unstable in times of stress. The present paper develops a dynamic equilibrium model and shows that this instability can be a consequence of market-wide changes in expectations, but does not have to be. We derive a liquidity constraint and a collateral constraint that determine whether such expectations-driven runs are possible and show that they depend crucially on the microstructure of particular funding markets that we examine in detail. In particular, our model provides insights into the differences between the tri-party repo market and the bilateral repo market, which were both at the heart of the recent financial crisis.

Keywords: Investment banking, securities dealers, repurchase agreements, tri-party repo, bilateral repo, money market mutual funds, asset-backed commercial paper, runs, financial fragility

JEL Classification: E44, E58, G24

Suggested Citation

Martin, Antoine and Skeie, David R. and von Thadden, Ernst-Ludwig, Repo Runs (September 15, 2010). Review of Financial Studies 27, 4, 2014, 957-989; FRB of New York Staff Report No. 444. Available at SSRN: https://ssrn.com/abstract=1594895 or http://dx.doi.org/10.2139/ssrn.1594895

Antoine Martin (Contact Author)

Federal Reserve Bank of New York - Research and Statistics ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6943 (Phone)

David R. Skeie

Texas A&M University - Mays Business School - Department of Finance ( email )

360E Wehner
College Station, TX 77843-4218
United States
949-845-1224 (Phone)
979-845-3884 (Fax)

HOME PAGE: http://mays.tamu.edu/directory/drs/

Ernst-Ludwig Von Thadden

Universitaet Mannheim ( email )

Department of Economics
Mannheim, 68131
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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