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Title:A note on central counterparties in repo markets PDF Logo
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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