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| Title: | | A note on central counterparties in repo markets  |
| Authors: | | Tomura, Hajime |
| Issue Date: | | 2012 |
| Series/Report no.: | | Bank of Canada Discussion Paper 2012-4 |
| Abstract: | | The author introduces a central counterparty (CCP) into a model of a repo market. Without the CCP, there exist multiple equilibria in the model. In one of the equilibria, a repo market emerges as bond dealers and cash investors choose to arrange repos in an over-the-counter bond market. In another equilibrium, the repo market collapses due to aggregate cash shortage for dealers. Introducing a CCP into the repo market blocks the latter equilibrium. This stabilizing effect of a CCP is robust to idiosyncratic default risk of dealers and asymmetric information about the risk. |
| Subjects: | | Payment, clearing, and settlement systems Financial markets Financial stability |
| JEL: | | G24 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Bank of Canada Discussion Papers
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