Safe asset shortage and collateral reuse

Arbeitspapier

The reuse of collateral can support the efficient allocation of safe assets in the financial system. Exploiting a novel dataset, we show that banks substantially increase their reuse of sovereign bonds in response to scarcity induced by Eurosystem asset purchases. While repo rates react little to purchase-induced scarcity when reuse is low, they become increasingly sensitive at high levels of reuse. An elevated reuse rate is also associated with more failures to deliver and a higher volatility of repo rates in the cross-section of bonds. Our results highlight the trade-off between shock absorption and shock amplification effects of collateral reuse.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 355

Classification and Topics

• Classification: Wirtschaft
• Subject: safe assets ; government bonds ; collateral reuse ; rehypothecation ; repo market ; securities lending

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jank, Stephan ; Mönch, Emanuel ; Schneider, Michael
• Event: Veröffentlichung
• (who): Leibniz Institute for Financial Research SAFE
• (where): Frankfurt a. M.
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/262212
• Last update: 10.03.2025, 11:41 AM CET