Repo runs

Antoine Martin, David Skeie and Ernst-Ludwig Thadden

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper develops a dynamic model of financial institutions that borrow short-term and invest into long-term marketable assets. Because such intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct liquidity and collateral constraints that characterize the fragility of such institutions as a result of changing market expectations. The liquidity constraint depends on the intermediary's endogenous liquidity position that acts as a buffer against runs. The collateral constraint depends crucially on the microstructure of particular funding markets that we examine in detail. In particular, our model provides insights into the fragility and differences of the tri-party repo market and the bilateral repo market that were at the heart of the recent financial crisis.

Keywords: investment banking; securities dealers; repurchase agreements; tri-party repo; runs; financial fragility (search for similar items in EconPapers)
JEL-codes: E44 E58 G24 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2011-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://eprints.lse.ac.uk/119064/ Open access version. (application/pdf)

Related works:
Journal Article: Repo Runs (2014)
Working Paper: Repo Runs (2013)
Working Paper: Repo Runs (2011)
Working Paper: Repo runs (2010)
Working Paper: Repo Runs (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119064

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