Download This PaperRegulatory Arbitrage in Repo Markets
65 Pages Posted: 3 Nov 2015 Last revised: 22 Aug 2017
Date Written: June 1, 2017
Abstract
Non-U.S. banks with relatively low capital ratios appear to temporarily remove an average of $170 billion from the U.S. market for tri-party repurchase agreements (repo) before each quarter-end in order to appear safer and less levered. This amount is more than double the $76 billion market-wide drop in tri-party repo during the turmoil of the 2008 financial crisis and represents about 10% of the entire tri-party repo market. Such window dressing-induced deleveraging spills over into agency bond markets and money market funds and affects market liquidity each quarter.
Suggested Citation: Suggested Citation
Munyan, Benjamin K., Regulatory Arbitrage in Repo Markets (June 1, 2017). Office of Financial Research Working Paper No. 15-22, Available at SSRN: https://ssrn.com/abstract=2685592 or http://dx.doi.org/10.2139/ssrn.2685592
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