The (impossible) repo trinity: The political economy of repo markets

Gabor, Daniela

Abstract

© 2016 Informa UK Limited, trading as Taylor & Francis Group. In its capacity as debt issuer, the state has played a growing role in financial life over the last 30 years. To examine this role and connect it to shadow banking, the paper develops the concept of the ‘repo trinity’, which captures a set of policy objectives that central banks outlined after the 1998 Russian crisis, the first systemic crisis of collateral-based finance. The repo trinity connected financial stability with liquid government bond markets and free repo markets. It further reinforced the dominance of the US government bond market as institutional template for states adjusting to a world of independent central banks, market-based financing and global competition for liquidity. Central banks and the Financial Stability Board recognized the impossible nature of the trinity after 2008, attributing cyclical leverage (financial instability) and elusive liquidity in collateral markets to deregulated repo markets, markets systemic to shadow banking. The new approach triggered radical changes in crisis central banking but has not powered significant regulatory interventions in the absence of an alternative mode of organizing government bond markets.

• Journal Article Type: Article
• Acceptance Date: Apr 1, 2016
• Online Publication Date: Aug 4, 2016
• Publication Date: Nov 1, 2016
• Journal: Review of International Political Economy
• Print ISSN: 0969-2290
• Electronic ISSN: 1466-4526
• Publisher: Taylor & Francis (Routledge)
• Peer Reviewed: Peer Reviewed
• Volume: 23
• Issue: 6
• Pages: 967-1000
• DOI: https://doi.org/10.1080/09692290.2016.1207699
• Keywords: shadow banking, repo markets, government debt, Bundesbank, Bank of England
• Public URL: https://uwe-repository.worktribe.com/output/906736
• Publisher URL: http://dx.doi.org/10.1080/09692290.2016.1207699