Repo Runs (Martin A., Skeie D., Thadden E.–L.)

Investment Banking

Abstract This paper develops a model of financial institutions that borrow short-term and invest into long-term marketable assets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We endogenize the profits of such intermediaries and derive distinct liquidity and collateral conditions that determine whether a run can be prevented. We examine the microstructure of repo and similar markets in more detail and show that the collateral condition, and therefore the stability against runs, crucially depends on the market structure. The sale of assets can help to eliminate runs under some conditions, but because of cash-in-the-market pricing, this can become impossible in the case of a general market run.
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Libref/ Martin A., Skeie D., Thadden E.–L. (2010) “ Repo Runs”, Federal Reserve Bank of New York Staff Report No. 444, pp. 1-35
© Программирование — Александр Красильников, 2008
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