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How Has Monetary and Regulatory Policy Affected Trading Relationships in the U.S. Repo Market?

Author

Listed:
  • Sriya Anbil

    (Federal Reserve Board)

  • Zeynep Senyuz

    (Federal Reserve Board)

Abstract

We analyze the effects of changes in monetary and regulatory policy on trading dynamics in the U.S. triparty repo market. Using a confidential data set of transactions, we find that the Fed's reverse repo (RRP) facility led to a 16 percent reduction in cash lending by money market mutual funds (MMFs) eligible to transact with the Fed. We show that the RRP facility increased the bargaining power of MMFs on days when their borrowers, non-U.S. dealers, increased their window-dressing activity due to Basel III capital reforms. For those dealers reliant on eligible MMF funding, window dressing became more expensive, but the average rates they paid on other days remained stable because of anchoring by the facility. We also show that the RRP facility influenced the way MMFs managed their balance sheets, and directed them towards safer investments.

Suggested Citation

  • Sriya Anbil & Zeynep Senyuz, 2022. "How Has Monetary and Regulatory Policy Affected Trading Relationships in the U.S. Repo Market?," International Journal of Central Banking, International Journal of Central Banking, vol. 18(4), pages 1-52, October.
    • Handle: RePEc:ijc:ijcjou:y:2022:q:4:a:1
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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