Post by Sapphire Capital on Dec 29, 2017 9:55:49 GMT 4
Pushing Shadow Banking into the Light: Reforming the U.S. Tri‐Party Repo Market
Research Handbook in Shadow Banking (2018 Forthcoming)
Widener Law Commonwealth Research Paper No. 7-14
26 Pages Posted: 26 Nov 2017
Christian A. Johnson
Widener University - Commonwealth Law School
Date Written: November 22, 2017
Abstract
The U.S. tri‐party repo market is one of the most active and liquid in global capital markets. Even more specialized than traditional repo, tri‐party repo has often operated in the shadows of global finance. The U.S. Federal Reserve, however, has helped make this market more transparent and less volatile than it has operated in the past. The U.S. tri-party market has approximately US$1.6 trillion outstanding of repos executed between large financial institutions. It became apparent, however, that the repo market had huge systemic risks due to the domination of two large custodians in the market. This domination resulted in huge amounts of inter-market interdependence. Recognizing the need for systemic changes, the U.S. Federal Reserve as a prudential regulator exercised enormous amounts of pressure on these institutions to reform the market. This reform process could also help serve as an important model for future reforms to other areas of shadow banking.
papers.ssrn.com/sol3/papers.cfm?abstract_id=3076091&partid=980087&did=366359&eid=303673
Research Handbook in Shadow Banking (2018 Forthcoming)
Widener Law Commonwealth Research Paper No. 7-14
26 Pages Posted: 26 Nov 2017
Christian A. Johnson
Widener University - Commonwealth Law School
Date Written: November 22, 2017
Abstract
The U.S. tri‐party repo market is one of the most active and liquid in global capital markets. Even more specialized than traditional repo, tri‐party repo has often operated in the shadows of global finance. The U.S. Federal Reserve, however, has helped make this market more transparent and less volatile than it has operated in the past. The U.S. tri-party market has approximately US$1.6 trillion outstanding of repos executed between large financial institutions. It became apparent, however, that the repo market had huge systemic risks due to the domination of two large custodians in the market. This domination resulted in huge amounts of inter-market interdependence. Recognizing the need for systemic changes, the U.S. Federal Reserve as a prudential regulator exercised enormous amounts of pressure on these institutions to reform the market. This reform process could also help serve as an important model for future reforms to other areas of shadow banking.
papers.ssrn.com/sol3/papers.cfm?abstract_id=3076091&partid=980087&did=366359&eid=303673