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Contribution Details
| Type | Conference Presentation |
| Scope | Discipline-based scholarship |
| Title | A Theory of Repurchase Agreements, Collateral Re-use and Repo Intermediation |
| Organization Unit | |
| Authors |
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| Presentation Type | other |
| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Event Title | Financial Fragility and Safe Assets Workshop |
| Event Type | workshop |
| Event Location | London Business School, London |
| Event Start Date | March 1 - 2019 |
| Event End Date | March 1 - 2019 |
| Abstract Text | We show that repurchase agreements (repos) arise as the instrument of choice to borrow in a competitive model with limited commitment. The repo contract traded in equilibrium provides insurance against fluctuations in the asset price in states where collateral value is high and maximizes borrowing capacity when it is low. Haircuts increase both with counterparty risk and asset risk. In equilibrium, lenders choose to re-use collateral. This increases the circulation of the asset and generates a "collateral multiplier" effect. Finally, we show that intermediation by dealers may endogenously arise in equilibrium, with chains of repos among traders. |
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