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Repo auctions and the market for liquidity


Bindseil, Ulrich; Nyborg, Kjell G; Strebulaev, Ilya A (2009). Repo auctions and the market for liquidity. Journal of Money, Credit and Banking, 41(7):1391-1421.

Abstract

What is the nature of imperfections in the market for liquidity? Studying bidder level data from European Central Bank (ECB) repo auctions, we find that this market appears to be informationally efficient in the sense that participants do not have private information about future short-term rates. However, auction allocations affect banks' subsequent behavior in a way that is consistent with a degree of allocational and operational inefficiency. Also, large bidders appear to have better access to the interbank market than small ones. Finally, the evidence suggests that the ECB uses collateral haircuts that do not equilibrate opportunity costs.

Abstract

What is the nature of imperfections in the market for liquidity? Studying bidder level data from European Central Bank (ECB) repo auctions, we find that this market appears to be informationally efficient in the sense that participants do not have private information about future short-term rates. However, auction allocations affect banks' subsequent behavior in a way that is consistent with a degree of allocational and operational inefficiency. Also, large bidders appear to have better access to the interbank market than small ones. Finally, the evidence suggests that the ECB uses collateral haircuts that do not equilibrate opportunity costs.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:October 2009
Deposited On:11 Feb 2010 02:28
Last Modified:22 Jul 2021 11:14
Publisher:Wiley-Blackwell
ISSN:0022-2879
OA Status:Closed
Publisher DOI:https://doi.org/10.1111/j.1538-4616.2009.00261.x
Other Identification Number:merlin-id:6927

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