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The role of margin requirements and haircuts in procyclicality

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  • Bank for International Settlements

Abstract

Terms and conditions on secured lending transactions, as well as the changes to the eligible pool of collateral securities and the applicable haircuts on them, affect the access to credit and risk-taking behaviour of leveraged market participants. The study group report on The role of margin requirements and haircuts in procyclicality under the chairmanship of David Longworth of Bank of Canada reviews market practices for setting credit terms applicable to securities lending and over-the-counter derivatives transactions with a view to assess how these practices may contribute to financial system procyclicality. The report recommends a series of policy options, including some for consideration, directed at margining practices to dampen the build-up of leverage in good times and soften the systemic impact of the subsequent deleveraging.

Suggested Citation

  • Bank for International Settlements, 2010. "The role of margin requirements and haircuts in procyclicality," CGFS Papers, Bank for International Settlements, number 36.
    • Handle: RePEc:bis:biscgf:36
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    Cited by:

    1. Viral V. Acharya & Ouarda Merrouche, 2013. "Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis," Review of Finance, European Finance Association, vol. 17(1), pages 107-160.
    2. Gary Gorton & Andrew Metrick, 2010. "Haircuts," Review, Federal Reserve Bank of St. Louis, vol. 92(Nov), pages 507-520.
    3. Bruno Biais, 2016. "Optimal margins and equilibrium prices," 2016 Meeting Papers 270, Society for Economic Dynamics.
    4. Boudt, Kris & Paulus, Ellen C.S. & Rosenthal, Dale W.R., 2017. "Funding liquidity, market liquidity and TED spread: A two-regime model," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 143-158.
    5. Valderrama, Laura, 2015. "Macroprudential regulation under repo funding," Journal of Financial Intermediation, Elsevier, vol. 24(2), pages 178-199.
    6. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69.
    7. Ms. Laura Valderrama, 2010. "Macroprudential Regulation Under Repo Funding," IMF Working Papers 2010/220, International Monetary Fund.
    8. Sung-guan Yun & Ronald Heijmans, 2013. "Analysis of Risk Factors in the Korean Repo Market: Based on the US and European Repo Market Experiences," Working Papers 2013-29, Economic Research Institute, Bank of Korea.

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