Safe Asset Shortage and Collateral Reuse

48 Pages Posted: 23 Nov 2021

See all articles by Stephan Jank

Stephan Jank

Deutsche Bundesbank

Emanuel Moench

Frankfurt School of Finance and Management

Michael Schneider

Deutsche Bundesbank; Goethe University Frankfurt

Multiple version iconThere are 3 versions of this paper

Date Written: 2021

Abstract

The reuse of collateral can support the efficient allocation of assets in the financial system. Exploiting a novel dataset, we quantify banks' collateral reuse at the security level. We show that banks substantially increase their reuse of collateral in response to scarcity induced by central bank asset purchases. Repo rates are less sensitive to purchase-induced scarcity at low levels of reuse, when the banking system can easily supply collateral through reuse. Repo rates are more sensitive to scarcity and more volatile at high levels of reuse, highlighting the trade-off between the shock absorption and shock amplification effects of collateral reuse.

Keywords: safe assets, government bonds, collateral reuse, rehypothecation, repo market, securities lending

JEL Classification: E4, E5, G1, G2

Suggested Citation

Jank, Stephan and Moench, Emanuel and Schneider, Michael, Safe Asset Shortage and Collateral Reuse (2021). Deutsche Bundesbank Discussion Paper No. 39/2021, Available at SSRN: https://ssrn.com/abstract=3967819 or http://dx.doi.org/10.2139/ssrn.3967819

Stephan Jank (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Emanuel Moench

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Michael Schneider

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Goethe University Frankfurt

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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