Seminar with Neeltje van Horen, Bank of England
The FRIC center and the Department of Finance are happy to announce the upcoming seminar with Neeltje van Horen, Bank of England.
Neeltje van Horen will present:
Repo Market Functioning: The Role of Capital Regulation
(joint with Antonis Kotidis, University of Bonn)
This paper shows that the leverage ratio impairs repo intermediation for small banks and nonbank financial institutions. We exploit a regulatory change in the UK to identify an exogenous intensification of the leverage ratio and combine this with supervisory transaction-level data capturing the near-universe of bilateral gilt repo trading. Studying adjustments at the dealer-client pair level, we find that dealers subject to a more binding leverage ratio reduced liquidity in the repo market, in particularly to their smaller clients, relative to non-affected dealers. Larger clients and clients with whom the dealer had a strong lending relationship were not affected. We further document a persistent increase in the cost of repo intermediation, as well as a persistent reduction in the extensive margin, but no adjustment in haircuts or maturities. Finally, we find evidence of repo substitution at the client level with non-affected, foreign dealers stepping in. Overall, our findings have important policy implications on the aggregate and compositional effects of capital regulation on repo markets.
You can find the paper here: Repo Market Functioning: The Role of Capital Regulation.
Solbjerg Plads 3, 20000 Frederiksberg
Room: SP D4.20