Repo Collateral Reuse and Liquidity Windfalls [ECB Working Papers series No 3147 & ECB Conference on Money Markets 2025, Poster session, available here]

with Sofia Marques Pereira and Victor Rodrigues-Gomes

Reuse of collateral within repo markets is key in enabling participants to meet their short-term financing needs, maintaining market efficiency, and establishing collateral valuations. In addition, part of the literature relies on the premise that some market players, in special large dealers, take advantage of their market position to obtain “liquidity windfalls” through haircut differences when reusing collateral. However, despite the importance of this mechanism for market functioning, the result is mainly theoretical, as empirical work exploring the effects of collateral reuse is scant. Through the analysis of a novel database on European Securities Financed Transactions, this study aims to help fill this gap. We show that around 11 percent of transaction volume is based on reused securities, with chains averaging three links. Besides, contrary to the liquidity-windfalls hypothesis, we find that dealers do not impose systematic haircut wedges when interposing between non-dealers.

Work in progress

1) What Drives Internal Repo Markets?

with Felix Hermes, Benoit Nguyen and Davide Tomio

2) Collateral reuse chains in the European Repo Market

with Benoit Nguyen and Victor Rodrigues-Gomes

3) Repo netting in SFTDS

with Victor Rodrigues-Gomes and Michael Schmidt

4) Stock Market Participation in Germany, Wealth Effects, and Monetary Policy Transmission

with Asli Mahmudova

5) AI-driven peer group selection using ML and numerical data-based analysis and its implication for Corporate Finance

with Mark Wahrenburg and Marin Shalari