A Theory of Repurchase Agreements, Collateral Re-use, and Repo Intermediation

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6579

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: Other
• Subject: repos ; collateral multiplier ; limited commitment ; intermediation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gottardi, Piero ; Maurin, Vincent ; Monnet, Cyril
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/167565
• Last update: 10.03.2025, 11:43 AM CET