Benedikt Ballensiefen
- 15 October 2026
- WORKING PAPER SERIES - No. 3301Details
- Abstract
- We study how frictions impact haircut setting in repo markets. Using transaction-level supervisory data and exploiting the 2021 introduction of the binding leverage ratio requirement, we show that three frictions jointly shape haircuts in the bilateral dealer-to-client segment: dealer balance sheet constraints, collateral convenience yields, and client outside options. In collateral-driven repos, binding leverage constraints and broader client outside options both raise haircuts, while higher convenience yields push them down. In funding-driven trades, the leverage constraint has no effect, higher convenience yields raise haircuts through the rehypothecation channel, and broader client outside options lower them. We rationalise these patterns in a bilateral bargaining model with periodic haircut renegotiation. Consistent with the model, constrained dealers exhibit higher repo-rate volatility and weaker pass-through of ECB policy rate changes in the collateral-driven segment. Post-crisis bank regulation thus carries potential unintended consequences for repo market functioning and the transmission of monetary policy.
- JEL Code
- C78 : Mathematical and Quantitative Methods→Game Theory and Bargaining Theory→Bargaining Theory, Matching Theory
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation