The Evolution of Repo Contracting Conventions in the 1980s

16 Pages Posted: 21 Jul 2006

See all articles by Kenneth Garbade

Kenneth Garbade

Federal Reserve Bank of New York


Contracting conventions for repurchase agreements, or repos, changed significantly in the 1980s. The growth of the repo market, new uses for repos, and the emergence of new and previously unappreciated risks prompted market participants to revise their contracting conventions. This article describes the evolution of the conventions during that period, focusing on three key developments: the recognition of accrued interest on repo securities, a change in the application of federal bankruptcy law to repos, and the accelerated growth of a new form of repo - tri-party repo. The author argues that the emergence of tri-party repo owed to the efforts of individual market participants acting in their own economic self-interest. By comparison, recognition of accrued interest and the change in bankruptcy law were effected, respectively, by participants taking collective action and seeking legislative relief because uncoordinated, individual solutions would have been more costly. These developments offer important insights into how markets operate: contracting conventions that are efficient in one market environment may have to be revised when the environment changes, and institutional arrangements can change in any number of ways.

Keywords: repurchase agreements, repos, Drysdale, tri-party

JEL Classification: G10, G18, G28

Suggested Citation

Garbade, Kenneth, The Evolution of Repo Contracting Conventions in the 1980s. Economic Policy Review, Vol. 12, No. 1, May 2006, Available at SSRN:

Kenneth Garbade (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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