Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262212 
Year of Publication: 
2022
Series/Report no.: 
SAFE Working Paper No. 355
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
The reuse of collateral can support the efficient allocation of safe assets in the financial system. Exploiting a novel dataset, we show that banks substantially increase their reuse of sovereign bonds in response to scarcity induced by Eurosystem asset purchases. While repo rates react little to purchase-induced scarcity when reuse is low, they become increasingly sensitive at high levels of reuse. An elevated reuse rate is also associated with more failures to deliver and a higher volatility of repo rates in the cross-section of bonds. Our results highlight the trade-off between shock absorption and shock amplification effects of collateral reuse.
Subjects: 
safe assets
government bonds
collateral reuse
rehypothecation
repo market
securities lending
JEL: 
E4
E5
G1
G2
Document Type: 
Working Paper

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