Search Results
Working Paper
What Drives U.S. Treasury Re-use?
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, ...
Working Paper
Bond Market Intermediation and the Role of Repo
This paper models the important role that repurchase agreements (repos) play in bond market intermediation. Not only do repos allow dealers to finance their activities, but they also increase dealers' ability to satisfy levered client demands without having to adjust their holdings of risky assets. In effect, the ability to borrow specific assets for delivery allows dealers to source large quantity of assets without taking ownership of them. Larger levered client orders imply larger asset borrowing demands, thus increasing the borrowing cost for the asset (i.e., repo specialness). Dealers ...
Discussion Paper
Repo Rate Sensitivity to Treasury Issuance and Quantitative Tightening
Over the past six months, Treasury repo rates have risen, on average, relative to the rate on the overnight reverse repurchase agreement (ON RRP) facility and have become more volatile. Recent literature has argued that these trends have been driven, in part, by the cumulative effects of quantitative tightening (QT).2Specifically, during QT the Fed reduces its security holdings, which increases the amount of Treasury securities held by private investors. The reduction in securities holdings also results in a reduction in Federal Reserve (Fed) liabilities, which decreases the amount of ...
Discussion Paper
Non-bank financial institutions and the slope of the yield curve
In this note, we examine how changes in the yield curve slope affect the provision of credit and intermediation services by non-bank financial institutions (NBFIs), including broker-dealers and hedge funds. Although these NBFIs typically do not lend directly to the non-financial sector, they indirectly support the flow of credit by investing in debt securities and extending financing to investors who own such securities.
Working Paper
What Drives U.S. Treasury Re-use?
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 secured funding and their outright holdings. 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 ...
Working Paper
Liquidity Windfalls: The Consequences of Repo Rehypothecation
This paper presents a model of repo rehypothecation in which dealers intermediate funds and collateral between cash lenders (e.g., money market funds) and prime brokerage clients (e.g., hedge funds). Dealers take advantage of their position as intermediaries, setting different repo terms with each counterparty. In particular, the difference in haircuts represents a positive cash balance for the dealer that can be an important source of liquidity. The model shows that dealers with higher default risk are more exposed to runs by collateral providers than to runs by cash lenders, who are ...
Working Paper
Balance-Sheet Netting in U.S. Treasury Markets and Central Clearing
In this paper, we provide a comprehensive investigation of the potential for expanded central clearing to reduce the costs of the supplementary leverage ratio (SLR) on Treasury market intermediation in both cash and repo markets. Combining a detailed analysis of the rules involved in calculating the SLR with a unique set of regulatory data, we conclude that expanding central clearing would have relatively limited effects on the level of SLRs. We do find intermediaries’ increase their balance sheet netting when their regulatory balance sheet costs are higher. Our data permits us to ...