The Regulatory and Monetary Policy Nexus in the Repo Market

53 Pages Posted: 6 Jun 2018 Last revised: 29 Apr 2020

See all articles by Sriya Anbil

Sriya Anbil

Board of Governors of the Federal Reserve System

Zeynep Senyuz

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: April, 2018

Abstract

We examine the interaction of regulatory reforms and changes in monetary policy in the U.S. repo market. Using a proprietary data set of repo transactions, we find that differences in regional implementation of Basel III capital reforms intensified European dealers' window-dressing by 80%. Money funds eligible to use the Fed's reverse repo (RRP) facility cut their private lending almost by half and instead lent to the Fed when European dealers withdraw, contributing to smooth implementation of Basel III. In a difference-in-differences setting, we show that ineligible funds lent 15% less to European dealers as they find their withdrawal for reporting purposes inconvenient. We find that intermediation through the RRP led to quantity and not pricing adjustments in the market, which is consistent with the RRP facility anchoring market rates.

JEL Classification: C32, E43, E52

Suggested Citation

Anbil, Sriya and Senyuz, Zeynep, The Regulatory and Monetary Policy Nexus in the Repo Market (April, 2018). FEDS Working Paper No. 2018-27, Available at SSRN: https://ssrn.com/abstract=3187697 or http://dx.doi.org/10.17016/FEDS.2018.027

Sriya Anbil (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Zeynep Senyuz

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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