Carolyn Sissoko
Repurchase agreements and the (de)construction of financial markets
Sissoko, Carolyn
Authors
Abstract
© 2019, © 2019 Informa UK Limited, trading as Taylor & Francis Group. The safety of repurchase agreements (repos) depends on the neoclassical premise that markets are reliable sources of liquidity; repos in practice disprove the theory by generating collateral calls, collateral sales, liquidity events, and liquidity-driven losses for repo-borrowing funds and their end investors. As repo-type lending now dominates money markets, borrowers’ self-protective preference for ‘safe assets’ as collateral has distorted financial markets, disrupting private investment, and economic performance. Using a balance sheet approach this paper explains the liquidity-supporting role of the traditional banking system and contrasts it with the liquidity-demanding repo-based financial system. The paper also argues that contractual structure determines the balance of power in private sector loans, that no private loan is ‘safe’ for both borrower and lender, and that repo has shifted the balance of safety decisively in favour of lenders.
Journal Article Type | Article |
---|---|
Acceptance Date | Jun 7, 2018 |
Online Publication Date | Jul 29, 2019 |
Publication Date | Jul 3, 2019 |
Deposit Date | Oct 17, 2019 |
Publicly Available Date | Jan 4, 2021 |
Journal | Economy and Society |
Print ISSN | 0308-5147 |
Electronic ISSN | 1469-5766 |
Publisher | Taylor & Francis (Routledge) |
Peer Reviewed | Peer Reviewed |
Volume | 48 |
Issue | 3 |
Pages | 315-341 |
DOI | https://doi.org/10.1080/03085147.2018.1525155 |
Keywords | repurchase agreements; safe assets; market liquidity; banking; liquidity crises; secular stagnation |
Public URL | https://uwe-repository.worktribe.com/output/3868409 |
Publisher URL | https://doi.org/10.1080/03085147.2018.1525155 |
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Copyright Statement
This is an Accepted Manuscript of an article published by Taylor & Francis in Economy and Society on 29 July 2019, available online: https://doi.org/10.1080/03085147.2018.1525155
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