Repurchase agreements and the (de)construction of financial markets

Datos Bibliográficos

ID2159779
AutoresCarolyn Sissoko (0000-0003-3249-3121, Carolyn Sissoko, 10747 Flaxton St. Culver City, CA 90230, United States.)
Año2019
Volumen48
Número3
Páginas315-341
Fecha de publicación2019-07-03
Peer ReviewedSí
Open AccessNo
TipoARTICLE
RevistaEconomy and Society (JOURNAL)
Identificadores de la revistaISSN: 0308-5147 • E-ISSN: 1469-5766
EditorialInforma UK Limited (PUBLISHER • GB)
DOI10.1080/03085147.2018.1525155
OpenAlexW2948990741
IdiomaEN
Citas recibidas20
Referencias citadas37

The safety of repurchase agreements (repos) depends on the neoclassical premise that markets are reliable sources of liquidity; repos in practice disprove the theory by generating collateral calls, collateral sales, liquidity events, and liquidity-driven losses for repo-borrowing funds and their end investors. As repo-type lending now dominates money markets, borrowers' self-protective preference for 'safe assets' as collateral has distorted financial markets, disrupting private investment, and economic performance. Using a balance sheet approach this paper explains the liquidity-supporting role of the traditional banking system and contrasts it with the liquidity-demanding repo-based financial system. The paper also argues that contractual structure determines the balance of power in private sector loans, that no private loan is 'safe' for both borrower and lender, and that repo has shifted the balance of safety decisively in favour of lenders

Balance (ability · Balance sheet · Business · Collateral · Economics · Financial market · Financial system · Investment (military · Loan · Market liquidity · Monetary economics · Repurchase agreement · Banking stability, regulation, efficiency · Economic Theory and Policy · Housing, Finance, and Neoliberalism · Finance