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Tomura, Hajime
Year of Publication: 
Series/Report no.: 
Bank of Canada Discussion Paper 2012-4
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.
Payment, clearing, and settlement systems
Financial markets
Financial stability
Document Type: 
Working Paper
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