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Analysis of Risk Factors in the Korean Repo Market: Based on the US and European Repo Market Experiences

Author

Listed:
  • Sung-guan Yun

    (Payment Systems Research Team, Payment & Settlement Systems Department, The Bank of Korea)

  • Ronald Heijmans

    (Oversight Department, Cash and Payment Systems Division, De Nederlandsche Bank)

Abstract

Repo markets had been deemed more resilient against market instability compared to the unsecured inter-bank loan markets. In the US and Europe, however, prolonged investor runs on repos developed during the global financial crisis. Furthermore, in the course of the evolution of the crisis, the repo markets in the US and Europe showed differing movements. In contrast, no risks arising from the Korean repo market have yet emerged in practice thanks in part to its small market volume during the global financial crisis, but it could give rise to significant risks due to some fragility arising from factors such as the increase of trade concentration. For this reason, we wish to identify some weak points, and suggest some areas for improvement such as a ceiling on the amount of borrowing, and on the proportion of illiquid collateral held by investors. In addition, we discuss the need for the greater differentiation of margin, and for the extension of the intraday repo facility to the repo market.

Suggested Citation

  • 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.
    • Handle: RePEc:bok:wpaper:1329
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    File URL: http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2013-29.pdf
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    References listed on IDEAS

    as
    1. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
    2. Bank for International Settlements, 2010. "The role of margin requirements and haircuts in procyclicality," CGFS Papers, Bank for International Settlements, number 36.
    3. Gorton, Gary B., 2012. "Misunderstanding Financial Crises: Why We Don't See Them Coming," OUP Catalogue, Oxford University Press, number 9780199922901.
    4. Kenneth D. Garbade & Frank M. Keane & Lorie Logan & Amanda Stokes & Jennifer Wolgemuth, 2010. "The introduction of the TMPG fails charge for U.S. Treasury securities," Economic Policy Review, Federal Reserve Bank of New York, vol. 16(Oct), pages 45-71.
    5. Peter Hördahl & Michael R King, 2008. "Developments in repo markets during the financial turmoil," BIS Quarterly Review, Bank for International Settlements, December.
    6. Brian Begalle & Antoine Martin & James McAndrews & Susan McLaughlin, 2016. "The Risk Of Fire Sales In The Tri-Party Repo Market," Contemporary Economic Policy, Western Economic Association International, vol. 34(3), pages 513-530, July.
    7. Adam Copeland & Antoine Martin & Michael Walker, 2010. "The tri-party repo market before the 2010 reforms," Staff Reports 477, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Sangyup Choi & Inkee Jang & Kee-Youn Kang & Hyunpyung Kim, 2024. "Haircut, Interest Rate, and Collateral Quality in the Tri-Party Repo Market: Evidence and Theory," Working Papers 11, University of Liverpool, Department of Economics.

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    More about this item

    Keywords

    Clearing; Repo; Settlement risk; OTC bonds;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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