BoE Publishes Paper on the Role of Capital Regulation in Repo Markets
BoE published a staff working paper that examines the role of capital regulation in the functioning of the repurchase agreement (repo) market. The paper shows that the leverage ratio affects repo intermediation for banks and non-bank financial institutions.
The paper reviews the related literature that studies the repo market. Next, the paper describes the gilt repo market and how the leverage ratio affects repo market intermediation. It then outlines the empirical methodology and describes the Sterling Money Market database that is being used. The study exploits a novel 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 gilt repo trading. The paper moves on to present and discuss the empirical findings and analyzes the aggregate effect and market adjustment. Finally, it concludes and discusses the policy implications of the findings of this study.
Studying adjustments at the dealer-client level and controlling for demand and confounding factors, it was found that dealers subject to a more binding leverage ratio reduced liquidity in the repo market; this affected their small, but not the large, clients. The study documents a reduction in frequency of transactions and a worsening of repo pricing, but no adjustment in haircuts or maturities. Finally, evidence of market resilience is found, based on existing, rather than new repo relationships, with foreign, non-constrained dealers stepping in. Overall, the findings help shed light on the impact of Basel III capital regulation on repo markets.
Related Links
Keywords: Europe, UK, Banking, Securities, Capital Regulation, Basel III, Leverage Ratio, Repo Market, BoE
Related Insights
|
News
EBA Single Rulebook Q&A: First Update for November 2018EBA published answers to seven questions under the Single Rulebook question and answer (Q&A) updates for this week.
November 09, 2018
WebPage
Regulatory News
|
|
News
FED Finalizes the Large Financial Institution Rating SystemFED finalized the new supervisory rating system for Large Financial Institutions (LFIs), to better align with the current supervisory programs and practices for these firms.
November 09, 2018
WebPage
Regulatory News
|
|
News
ECB Publishes Guides for Capital and Liquidity Management by BanksECB published the guides for capital and liquidity management by banks in EU.
November 09, 2018
WebPage
Regulatory News
|
|
News
EC Amends Regulation on Prudent Valuation for Supervisory ReportingEC published the amended Implementing Regulation (EU) 2018/1627 on prudent valuation for supervisory reporting. Regulation 2018/1627 amends the Implementing Regulation 680/2014.
November 09, 2018
WebPage
Regulatory News
|
|
News
FED Intends to Publish the Financial Stability Report in November 2018FED intends to begin publishing a semiannual report presenting its view of the outlook for U.S. financial stability, on November 28. The financial stability report will include a summary of the FED framework for assessing the resilience of the financial system in the United States.
November 09, 2018
WebPage
Regulatory News
|
|
News
ESMA Asks Clients of CRAs and TRs to Prepare for No-Deal BrexitESMA issued a public statement to raise awareness, among the market participants, on the readiness of credit rating agencies (CRAs) and trade repositories (TRs) for the possibility of no agreement being reached in the context of the United Kingdom withdrawing from the European Union (Brexit).
November 09, 2018
WebPage
Regulatory News
|
|
News
EIOPA Publishes Result of the Work of EU-US Insurance Dialog ProjectEIOPA published four papers resulting from the work of the EU–U.S. Insurance Dialog Project (EU-U.S. Project) in 2018.
November 08, 2018
WebPage
Regulatory News
|
|
News
EIOPA Publishes Q&A on Regulations in November 2018EIOPA published new sets of questions and answers (Q&A) on implementing and delegated regulations applicable to insurers in Europe.
November 07, 2018
WebPage
Regulatory News
|
|
News
APRA Finalizes CPS 234 to Help Combat Threat of Cyber AttacksAPRA has released the final version of its prudential standard focused on information security management.
November 07, 2018
WebPage
Regulatory News
|
|
News
EC Updates Rule on Forms and Templates for Resolution Plans by BanksEC finalized the Implementing Regulation (EU) 2018/1624 that lays down implementing technical standards on procedures and standard forms and templates for the provision of information for the purposes of resolution plans for credit institutions and investment firms.
November 07, 2018
WebPage
Regulatory News
|
