留学生关于影子银行体系的金融学Essay

在2007 - 2009年的金融危机中影子银行体系起到了至关重要的作用,其中最重要的作用之一就是创造了系统性风险。由于回购协议是影子银行体系中最大的一部分,在2007 - 2009年的金融危机也有必要关注影子银行系统债券回购的作用,然后讨论回购市场上有效的监管。此外,根据当前的法规,由于回购市场的系统性和结构性弱点,回购市场的监管运动应更多的关注金融机构的风险性系统,而不是个人。

 

在2007 - 2009年的金融危机中影子银行体系起到了至关重要的作用。联邦技术规范局(2011 b)的报告将影子银行定义为“发生在外部或部分以外的银行系统信用中介,但涉及杠杆和成熟转型”,以及影子银行系统作为“信用中介体系,包括普通银行系统以外的实体和活动”。它为企业在满足他们的资金需求上提供了一个更便宜和更有效的方式,并做为一个对常规银行填补而出现。然而,金融危机表明,影子银行体系仍可以制造处许多风险,其中最重要的一个是系统性风险。
 

第一章，引言-Chapter 1，INTRODUCTION

影子银行体系-The Shadow Banking System 

 

The shadow banking system played a crucial role in the 2007-2009 financial crisis that, in which one of the most important role is the creation of systemic risk. Since repurchase agreements are the largest part of the shadow banking system, it is necessary to focus on the role of repo in the shadow banking system as well as in the 2007-2009 financial crisis, then discuss for effective regulation on repo market. In addition, for the repo market's systemic nature and structural weaknesses, regulatory exercise on repo market should focus more on systemic risk of financial institutions, rather than individual, as the current regulations.

 

The shadow banking system played a critical role in the 2007-2009 financial crisis. The FSB (2011b) report has defined shadow banking as "credit intermediation which occurs outside or partially outside the banking system, but which involves leverage and maturity transformation", and the shadow banking system as "the system of credit intermediation that involves entities and activities outside the regular banking system". It provides a cheaper and more efficient way for corporations to meet their needs on funding, and was emerge as a complement to regular banking. However, the financial crisis shown that the shadow banking system can also create a number of risks, in which the most important one is systemic risk.

 

A repurchase agreement is a financial contract that market participants used it as a financing method to meet short and long term liquidity needs, in which one participant borrows cash from the other by pledging a financial security as collateral. In U.S. repo market, a series of regulatory changes in the 1980s made the repo market an attractive source of short-term financing for primary dealers to finance their positions in the debt of the U.S. government, federal agencies, corporations, and federal agency mortgage-backed securities. Moreover, another significant change in 2005 makes repo transactions eligible for bankruptcy safe harbor protection based on any stock, bond, or security. In addition, the rapid growth of money holding by institutional investors, pension funds, mutual funds, states and municipalities, and non-financial firms is another main driver for increasing use of repos. Unfortunately, there is no official data of the overall size of the repo market in U.S..

 

Since repos are the largest part of the shadow banking system, and shadow banking is seen to rely on wholesale funding such as repo as the deposits issued by traditional banks, and even seen as more dependent on these sources of funding than traditional banks are on deposits, it is necessary to focus on the role of repo in the shadow banking system as well as in the 2007-2009 financial crisis, and discuss the effective regulation on repo market.

 

1.1目的和研究目标-1.1 Aim and Research Objectives

 

The primary aim of this research is:

 

Shadow Banking System and Repo Market

 

during 2007-2009 Financial Crisis:

 

the Implications for Repo Regulation

 

In particular, the research will address the following research aspects:

 

Study the classical researches on shadow banking system, repo market and regulations.

 

Discuss the critical role of repo in 2007-2009 financial crisis and the necessity of repo regulation.

 

Summarize and discuss recent financial regulation, and give the implications for the future.

 

1.2论文的结构-1.2 The Structures of Dissertation

 

There are 6 chapters in this dissertation, the first chapter is the introduction which introduces the reasons for writing, research aim and objectives.

 

The second chapter briefly introduce the background of the dissertation. First give a definition on "shadow banking system", discuss its role in financial system, and point out its differences compared to traditional banking system. Then provide the definition of repurchase agreement, explaining how it works, outlining a profile of the U.S. repo market, and describing how it came to play such an important role in the shadow banking system.

 

The third chapter overview classic literatures related to the shadow banking system, repo market and financial regulations.

 

The fourth chapter using data to help understand the changes in financial crisis, and then discuss the critical role that repos play in the current financial crisis.

 

The fifth chapter focus on repo regulation, which overview the regulatory framework of repo market, summarize current regulatory exercises in several countries, and then articulate the implications for future repo market regulation.

 

The last chapter is the conclusion of the research, which summary the main ideas in the paper.

 

2.1影子银行系统-2.1 Shadow Banking System

 

FSB (2011a) mentions that the emergence of the term “shadow banking system” reflected a recognition of the increased importance of entities and activities structured outside the regular banking system that perform bank-like functions. The recent financial crisis demonstrated that shadow banking is highly interrelated with the regular banking system and can have an significant impact on financial stability. In the later report, FSB (2011b) defined shadow banking as "credit intermediation which occurs outside or partially outside the banking system, but which involves leverage and maturity transformation", and the shadow banking system as "the system of credit intermediation that involves entities and activities outside the regular banking system".

 

The traditional banking system based on making and holding loans with insured savings as the main source of funds, it borrowing short-term from other banks and lending long-term to the retail consumer.

 

The shadow banking system based on the business of packaging and reselling loans, it provides a cheaper and more efficient way for corporations to meet their needs on short-term funding, in which repos and asset-backed commercial paper (ABCP) are the main source of funds. These banks provide credit both directly and indirectly through three different processes of financial transformation:

 

Credit transformation, which means they enhance the credit quality to offer a range of seniority and duration, and a corresponding range of risk and return, from short-term AAA down to equity;

 

Maturity transformation, by which they finance long-term assets with short-term liabilities, it makes their liabilities much shorter term than their assets, and exposes short-term investors to market liquidity and duration risks;

 

Liquidity transformation, by which they fund illiquid assets with liquid liabilities, it causes the same result as maturity transformation through different techniques.

 

According to one measure of the size of the shadow banking system from FSB (2011), it grew rapidly before the financial crisis, from an estimated $27 trillion in 2002 to $60 trillion in 2007, and remained at around the same level in 2010. Gorton and Metrick (2010a) argue that the force from both supply and demand side cause the rapid development of shadow banking system before the current crisis: a series of innovations and regulatory changes eroded the competitive advantage of banks; and bank demand for collateral for financial transactions gave impetus to the development of securitization and the use of repos as a money-like instrument.

 

On the one hand, it should be recognised that intermediating credit through shadow banking can offer advantages to the financial system. First, shadow banking system provide an alternative source of funding for market participants to bank deposits. Second, since some non-bank entities increased specialization, it provide more efficiently credit resource to meet the specific needs in the economy and reduce the cost the investors. Third, it constitute an alternative source to diversify risk other than traditional banking system.#p#分页标题#e#

 

On the other hand, however, as the financial crisis has shown, the shadow banking system can also create a number of risks, in which the most important one is systemic risk. First, shadow banking business exposed to the similar risks as traditional banks, it financed by short-term deposit-like funding of non-bank entities, which my lead to “runs” in the market if confidence is lost. Second, the operation of non-deposit sources of collateral funding in shadow banking can be highly leveraged without being limited by regulator, especially when asset prices are rise and haircuts on secured financing are low. High leverage can increase the fragility of the financial system and become a source of systemic risk. Third, the risks in the shadow banking system can easily transmitted to the regular banking system since shadow banking businesses are often closely linked to the traditional banking sector. Which means that any failures in shadow banking can lead to important contagion due to the fact that banks often take part in the shadow banking credit intermediation chain or even provide support to the shadow banking entities. In addition, shadow banking system operations provide tools that banks can use it to avoid regulation or supervision applied to traditional bank system. Banks can break the traditional credit intermediation process in legally independent structures dealing with each other. As well known, the operations that banks circumventing capital and accounting rules, transferring risks out the control of banking regulation is the main cause of the recent crisis.

 

2.2回购债券(Repo)市场-2.2 The Repurchase Agreement (Repo) Market

 

2.2.1回购债券(Repo)-2.2.1 The Repurchase Agreement (Repo)

 

The most important component in shadow banking is securitized debt, such as U.S. Treasuries, commercial paper, mortgage-backed securities (MBSs), equities, and so on. Acharya and Öncü (2010) mention that, by the fourth quarter of 2009, the amount of outstanding securitized debt in the United States totaled $11.6 trillion, about one-third of the entire U.S. debt market, and much of this securitized debt is in the form of repurchase agreements. As mentioned before, shadow banking is seen to rely on wholesale funding such as repo as the deposits issued by traditional banks, and even seen as more dependent on these sources of funding than traditional banks are on deposits.

 

A repurchase agreement is a financial contract that market participants used it as a financing method to meet short and long term liquidity needs, in which one participant borrows cash from the other by pledging a financial security as collateral. It also known as a sale and repurchase agreement for a two part transaction, originally the bank or borrower, and the depositor or lender. In case that repo is negotiated and executed privately between a borrower and a lender, it is referred to as a bilateral agreement. And when both participants to a repo share a common custodian to hold collateral and to transfer cash, the arrangement is referred to as a tri-party repo.

 

The depositor deposits money and earns interest, whereas the bank provides bonds as collateral to back the deposit in exchange for the cash. Regulatory changes in the 1980s made the repo market an attractive source of short-term, often overnight, financing for primary dealers to finance their positions in the debt of the U.S. government, federal agencies, corporations, and federal agency mortgage-backed securities. Later, it also became a funding source for investors to lend and invest in relatively illiquid mortgage-backed securities.

 

When a repo transaction is agreed, cash will exchange for collateral on both the settlement and the maturity. The sale price for the establishment of securities equals to the amount of cash lent to the borrower, and the repurchase price is equivalent to the sale price plus interest charged by lender. Typically, the loan amount is equivalent to the market value of the collateral minus a haircut, in which the haircut is a percentage that calculated to protect the lender in the event of default by the borrower.

 

Figure 2.1 shows the cash exchanges in an “overnight” bilateral repo that settles on the day after the trade and matures on the day after settlement, and Figure 2.2 illustrates the role of a tri-party agent in holding the borrower’s collateral and transferring the lender’s cash.

 

Repo is an over-the-counter (OTC) contract that shares many key features with derivatives, such as the reliance on its counterparts to meet obligations over time. Similar as all OTC products, the life cycle of repo contains several standard processes: documentation, execution, clearing, settlement, and custody. Figure 2.3 shows the life cycle of repo.

 

The step of clearing is the match of trade notices generated by the two participants and the initiation of settlement instructions for the movement of cash and securities. Clearing happens several times during the life cycle of a trade: dealers match trades between themselves and their clients, and depositories match the resulting settlement instructions.

 

Settlement of repo is the exchange of cash and collateral. Custody is the maintenance of the cash and collateral in two separate accounts for both the lender and the borrower, which are held by broker-dealers themselves, by custody banks representing either party to the transaction, or by a single bank serving as custodian for both parties simultaneously.

 

2.2.2在美国回购债券市场-2.2.2 Repo Market in the U.S.

 

In 1917, the repos were first introduced to the U.S. financial market by the Federal Reserve. As Acharya and Öncü (2010) mention, the Fed used repos secured with bankers’ acceptances to extend credit to dealers to encourage the development of a liquid secondary market for acceptances. Early repos in the U.S. had two distinguishing features. First, accrued interest was excluded from the price of the repo securities. Second, even though the creditor could sell or deliver the repo securities to settle a prior sale at prices that included the accrued interest during the term of the repo, ownership of the repo securities rested with the debtor.

 

Figure 2.4 lists the main changes in the U.S. repo market history, the last significant change before the current crisis is that Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which expanded the definition of repurchase agreements to include mortgage loans, mortgage-related securities, and interest from mortgage loans or mortgage-related securities, which make repo transactions eligible for bankruptcy safe harbor protection based on any stock, bond, or other security .

 

Figure 2.4: Main Changes in the US Repo Market

 

In the U.S. repo market, loans are mostly extended overnight, which constitute about half of all repo transactions, and most of them are open, which means that they roll over automatically until either party chooses to exit. Other repo transactions called term repos, have terms longer than one day but shorter than one year, while most maturity of them three months or less. Participants in the repo market include commercial banks, investment banks, hedge funds, mutual funds, pension funds, money market funds, municipalities, corporations, and other owners of large amounts of idle cash, as well as the Fed and primary securities dealers.

 

The Fed participates in the repo market mostly to implement its monetary policy, while primary securities dealers participate mainly to finance their market-making and risk management activities. Owners of large amounts of cash in the repo market mainly engage for two reasons: First, get better interest rates in the repo market compared with deposits at commercial banks. Second, for insurance purposes. Large deposits at commercial banks are not insured, whereas deposits at “repo banks” are secured by debt used as collateral.

 

The rapid growth of money holding by institutional investors, pension funds, mutual funds, states and municipalities, and non-financial firms is one of the main drivers of increasing use of repos. They are seeking for a safe investment which can earn interest and simultaneously have strong liquidity. Under the U.S. Bankruptcy Code, especially since the change in 2005, repos have a special status: repo contract allows either participant to enforce the termination provisions of the agreement unilaterally, as a result of a bankruptcy filing by the other participant. Figure 2.5 shows the institutional investors' financial assets in the United State from 1980 to 2008.

 

Unfortunately, there is no official statistics of the overall size of the repo market in US, the Fed only counted those repos completed by the primary security dealers that trade with the Fed. Figure 2.6 indicates annual average of Daily financing by U.S. government primary dealers from 1996 to 2011, and it can be seen that there is an exponential growth in repo market.

 

Source: A Proposal for the Resolution of Systemically Important Assets and Liabilities: The Case of the Repo Market, Acharya and Öncü (2012).

 

Hördahl and King (2008) report that repo markets doubled in size from 2002 to 2007, the paper indicate that with gross amounts outstanding at year-end 2007 of roughly $10 trillion in each of the US and euro repo markets, and another $1 trillion in the UK repo market. They also point out that the U.S. repo market exceeded $10 trillion in mid-2008, including double counting both repo and reverse repo in the same transaction. Gorton (2010) illustrate that the size of repo market in US is likely to be about $12 trillion as of 2009, compared with the total assets in the U.S. banking system of $10 trillion.#p#分页标题#e#

 

In addition, the tri-party repo is predominantly part in the US repo market, anecdotal evidence suggests that tri-party repo activity may account for between 65% and 80% of the overall US repo market. Figure 2.7 shows the growth of tri-party repo transactions from May 2002 to May 2010. The value of securities financed by tri-party repos grow smoothly since 2002, reached the peak to about $2.8 trillion in early 2008, then the size of the market has declined notably to $1.7 trillion during first-quarter in 2010.

 

第三章.文献综述-Chapter 3. Literature Review

 

The term "shadow banking system" was first coined by former Pacific Investment Management Company (PIMCO) executive Paul McCulley at Federal Reserve Bank of Kansas City's Economic Symposium in Jackson Hole Wyoming in 2007. McCulley (2010) said that the shadow banking system appeared with the development of money market funds in the 1970s – money market accounts function largely as bank deposits, but money market funds are not regulated as banks. Gertler and Boyd (1993) and Corrigan (2000) are early discussions of the role of commercial banks and the market based financial system in financial intermediation.

 

Paul Krugman (2008) of the New York Times trace the cause of the economic meltdown to a "run" on shadow banks when credit dried up. He argued that the shadow banking system rely on complex financial design, avoid the conventional financial regulation and take part in more commercial banking business. Because of not regulated, shadow banks are easier to expand business areas than traditional banks, the financial crisis leads people to transfer their money from the shadow banking system to government bonds, suddenly the shadow Banks' liquidity exhaustion.

 

3.1关于影子银行系统的文献-3.1 Literature on Shadow Banking System

 

After the panic of 2007, there are a number of academic studies focus on the shadow banking system, and point out that the shadow banking system is at the heart of the credit crisis. Pozsar (2008) cataloguizes different types of shadow banks and describes the asset and funding flows within the shadow banking system. The paper clearly presents how the collateralized debt obligations (CDOs) changed from tools to manage credit risk to a source of credit risk.

 

Adrian and Shin (2009) focus on the role of security brokers and dealers in the shadow banking system, and discuss the implications for financial regulation. The paper illustrates that securitization was intended as a way to transfer credit risk to those better able to absorb losses initially, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities. They point out that it is important to prevent excessive leverage and maturity mismatch, both of which can undermine financial stability.

 

Pozsar, Adrian, Ashcraft, and Boesky (2010) provide a overview of shadow banking institutions and activities, focus on funding flows in a somewhat mechanical manner. The paper outline the economic role of shadow banking and show that there is a deep connection between shadow banking system and traditional banking system. The authors expect the shadow banking to be a significant part in the financial system in the future, but in a different form.

 

Gorton and Metrick (2010a) present a good description of the shadow banking system and discuss its risks to financial stability. The analysis focus on three major institutions: money-market mutual funds (MMMFs), securitization and repurchase agreements (repos). They argue that the evolution of a bankruptcy safe harbor for repos was crucial to the growth and efficiency of shadow banking, regulators can use access to this safe harbor as the lever to enforce new rules.

 

Gennaioli, Shleifer and Vishny (2011) develop a model of shadow banking where intermediaries originate, securitize and trade loans, financed externally with riskless debt. As a result, maturity transformation and leverage are excessive, and lead to credit booms and busts when investors and intermediaries neglect tail risks. Therefore, the paper argued that regulators should continuously monitor intermediaries’ exposures and financial innovations and intervene when necessary.

 

3.2回购债券文献(Repo)-3.2 Literature on Repurchase Agreements (Repo)

 

There are increasing number of literatures on markets for repurchase agreements (repo) since the panic of 2007 broke out. Before that, studies on repo mainly focus on the asset pricing field, e.g. Duffie (1996) and Buraschi and Menini (2002). After the 2007 financial crisis, the researchers started to discuss the role of repo in shadow banking system, and its contribution to recent financial crisis. Most of the researches are based on the evidence of the U.S. repo market.

 

Many theoretical studies have shown that pro-cyclical margins and haircuts have strong negative impact on the stability of financial markets. Brunnermeier and Pederson (2009) develop a model where margins can increase in illiquidity given uncertainty over the nature of price shocks. Once the speculators are subject to capital constraints, they will reduce their positions and market liquidity fall, which will then lead to higher margins and a so-called liquidity spiral. They argued that regulators should improve market liquidity by boosting speculator funding conditions during a liquidity crisis. Jurek and Stafford (2010) provide financing terms in collateralized lending markets with a theoretical model. The paper shows that securities which have quickly declining recovery values are financed at higher haircuts, will respond much more strongly to market fluctuations. They argue that the risk profile of the underlying collateral alone can explain why the repo haircuts shift massively during the recent financial crisis. Acharya, Gale and Yorulmazer (2011) present a model of market freezes and haircuts in secured borrowing, which explain that the crisis of 2007-09 was characterized by a sudden freeze in the market for short-term, asset-backed financing. The model contains three essential features: the debt has a much shorter tenor than the assets needs to rolled over frequently; in the event of default by the borrower, the collateral is sold by the creditors and there is a small liquidation cost; and a significant fraction of the potential buyers of the collateral also relies on short-term debt finance. Under these conditions, the debt capacity of the assets can be much less than the fundamental value, and in fact, equal the minimum possible value of the asset. The paper argued that it is true even if the fundamental value of the assets is currently high. In particular, a small change in the fundamental value of the assets can be associated with a sudden collapse in the debt capacity. Other papers on this topic include Valderrama (2010), Rytchkov (2009), Geanakoplos (2010)

 

Predictably, a great number of empirical literatures based on evidence from the US repo market have turned up to confirm the pro-cyclicality of margins and haircuts. The conclusion from these empirical studies strongly show that changes in margins and haircuts has a signally negative effect on financial system.

 

Adrian and Shin (2010) showed that marked-to-market leverage is strongly procyclical, repo transactions have accounted for most of the pro-cyclical adjustment of the leverage of investment banks. In this paper, they argued that aggregate liquidity can be understood as the rate of growth of the aggregate financial sector balance sheet. Financial intermediaries’ balance sheets generally become stronger when asset prices increase, their leverage tends to be too low, and then they hold surplus capital. In this case, the intermediaries will attempt to find ways to employ their surplus capital. And for such surplus capacity to be utilized, they must expand their balance sheets, which means that they take on more short-term debt on the liability side and search for potential borrowers on the asset side. From the evidence of repo market in the United States, it can be seen that when balance sheets are expanding fast enough, even borrowers that do not have the means to repay are granted credit because the urge to employ surplus capital is so intense. They point out that this is fundamental cause for the subsequent downturn in the credit cycle.

 

Gorton and Metrick (2010b) present direct evidence on the haircuts in the repo market and illustrate that increases in repo haircuts are withdrawals from securitized banks, which means that it is a bank run. The paper said that when all investors act in the run and the haircuts become high enough, the securitized banking system cannot finance itself and is forced to sell assets. These changes in the constraints on funding liquidity can have a fast effect on asset prices and market dynamics. As a result, the assets become information sensitive and the liquidity dries up, and finally the system is insolvent.

 

Gorton and Metrick (2011) argued that changes in haircuts were the main cause of the 2007-2009 financial crisis. The paper study a segment of the bilateral repo market and use a novel data set that includes credit spreads for hundreds of securitized bonds to trace the path of crisis from sub-prime-housing related assets into markets that had no connection to housing. They find that changes in the “LIB-OIS” spread, a proxy for counter-party risk, was strongly correlated with changes in credit spreads and repo rates for securitized bonds which implied higher uncertainty about bank solvency and lower values for repo collateral. Moreover, they draw a figure showing the “haircuts index”, which can be seen as an average haircut for collateral used in repo transactions but not including US Treasury securities, in the US repo market rising from zero before July 2007 to nearly 50 percent at the peak of the financial crisis in late 2008. With decreasing asset values and increasing haircuts, the U.S. banking system was finally insolvent for the first time since the Great Depression.#p#分页标题#e#

 

However, Richard Comotto (2012) argued that there is a serious flaw in this "haircut index", as well as the thesis that much of the crisis was driven by “run on repo”. The paper point out that Gorton and Metrick (2011)’s data based their conclusions was only for collateral in the form of structured securities (ABS, RMBS, CMBS, CLO and CDO). Moreover, the paper claim that Gorton and Metrick (2011) offer no data on US Treasuries, which constitutes the largest pool of repo collateral in the US, and ignore the tri-party segment of the repo market, which may have accounted for 50-60% of outstanding US repo and is largely collateralized by US Treasuries, Agencies and MBS, for which haircuts are much lower and asset values were not impacted by the crisis to anything like the degree as structured securities. The paper indicate that the Fed‐sponsored Task Force on Tri-party Repo Infrastructure (2009) reported that the available data suggested that margins in the tri-party repo market did not change much during the 2007-2009. In conclusion, Richard Comotto (2012) thought that Gorton and Metrick (2011) are unwise toassume that repo funding is by virtue of the dynamics of haircuts is an inherently unstable source of funding without sufficient empirical data.

 

Copeland, Martin and Walker (2011) find that there are significant differences between haircut changes in bilateral and tri-party segment of the repo market. During the 2007-2009 financial crisis, haircuts and funding in the bilateral repo market changed dramatically which is similar with the result of Gorton and Metrick (2011)'s work. However, haircuts in the tri-party repo market did not change much, and that funding was very stable for dealers, and the only exception is Lehman Brothers, whose tri-party repo book decreased sharply in the days leading up to its bankruptcy. The author provide three possible explanations as to why haircuts in the tri-party repo market barely moved. First one is that some cash investors appear to be reluctant or unprepared to take possession of the collateral, they prefer to withdraw funding if they think a dealer is not creditworthy. Secondly, since money funds are very intolerant of liquidity and credit risk, major categories of tri-party repo investors have to worry about withdrawal pressures from their own investors. Thirdly, due to tri-party repos were mainly overnight and the clearing bank would unwind repos every morning, cash investors may feel that they can always pull away from troubled dealer, which makes the management of haircuts less important.

 

Since tri-party repo market and the bilateral repo market were both at the heart of the current financial crisis, to recognise the different use of haircuts across these two repo markets is important to regulators in considering policies designed to prevent runs on securities dealers. A further study from Martin, Skeie and von Thadden (2011), develop a dynamic equilibrium model to study how the fragility of short-term funding markets depends upon the particular microstructures, liquidity, and collateral arrangements that may lead to runs at various types of financial institutions. The paper shows that market microstructure can explain the different changes of haircuts between bilateral and tri-party repo markets. The haircut for each collateral class is included in the custodial undertaking agreement between the three parties and takes much more time to change than bilateral contracts, which make the tri-party repo market more susceptible to runs. The model can actually explain why haircuts may not adjust sufficiently to protect the investors in case of Lehman Brothers.

 

Although several studies believe that the run on the repo market play a crucial role during the financial crisis, some empirical papers argue that the impact of repo contraction on the shadow banking system is relatively limited. For example, Krishnamurthy, Nagel and Orlov (2012) measure the repo funding extended by money market funds (MMF) and securities lenders to the shadow banking system, including quantities, haircuts, and repo rates by type of underlying collateral. They find that repo played only a small role in funding private sector assets prior to the crisis, only 3% of outstanding non-Agency mortgage-backed securities (MBS) and asset-backed(ABS) securities was financed by repos from MMFs or securities lenders, and 22% was financed by asset-backed commercial paper (ABCP). However, they also find that the contraction in repo particularly affected systemically key dealer banks with large exposures to private sector securities, which then had knock-on effects on security markets.

 

3.3回购市场监管文献-3.3 Literature on Repo Market Regulation

 

Gai, Haldane and Kapadia (2011) develop a network model of interbank lending in which unsecured claims, repo activity and shocks to the haircuts applied to collateral assume center stage. The model shows that how the complexity and concentration in financial system may amplify its fragility. The analysis not only points out that minimum margin requirements can be used as a macro-prudential tool in regulation, it also suggests that how a range of policy measures including liquidity regulation and capital surcharges for systemically important financial institutions could make the financial system more resilient.

 

Goodhart, Charles, Kashyap, Tsmocos and Varoulavis (2011) introduce a model that includes both a banking system and a “shadow banking system” that each help households finance their expenditures, and explore how different types of financial regulation could combat many of the phenomena that were observed in the financial crisis of 2007 to 2009. The paper analyses the effects of increasing margin requirements on repo transactions, and show that margin restrictions may partially constrain risk taking and raise the cost of mortgage borrowing.

 

Gorton and Metrick (2010b) suggest that repos should be regulated because they are, in effect, new forms of banking, it is similar to bank deposits but have the same vulnerabilities as bank-created money. The authors' proposals are aimed at creating a sufficient amount of high-quality collateral that can be used safely in repo transactions.

 

Acharya and Öncü (2012) point out that one of the several regulatory failures behind the recent financial crisis started in 2007 has been the regulatory focus on individual, rather than systemic, risk of financial institutions. Therefore, they provide a set of resolution mechanisms which is not only capable of addressing the issues of inducing market discipline and mitigating moral hazard, but also capable of addressing the systemic risk associated with the systemically important assets and liabilities (SIALs). Specifically, in order to control the risk of a run on the repo market, the authors propose to create a “Repo Resolution Authority (RRA)” in jurisdictions with significant repo activities, which can address the externality of systemic risk of repo contracts on risky and potentially illiquid collaterals.