Working Paper Revision
What Drives U.S. Treasury Re-use?
Abstract: We study what drives the re-use of U.S. Treasury securities in the financial system. Using confidential supervisory data, we estimate the degree of collateral re-use at the dealer level through their collateral multiplier : the ratio between a dealer's total secured funding and their outright holdings financed through secured funding. We find that Treasury re-use increases as the supply of available securities decreases, especially when supply declines due to Federal Reserve asset purchases. We also find that non-U.S. dealers' re-use increases when profits from intermediating cash are high, U.S. dealers' re-use increases when demand to source on-the-run Treasuries is high, and both types of dealers' re-use can alleviate safe asset scarcity. Finally, we document a sharp drop in Treasury re-use at the onset of the COVID-19 pandemic, with a subsequent reversal after the Federal Reserve's intervention to support market functioning.
File(s): File format is text/html https://www.federalreserve.gov/econres/feds/files/2020103r1pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2021-08-24
- Working Paper Revision: What Drives U.S. Treasury Re-use?