Patrick Schaffner
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Schaffner
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Patrick
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patrick.schaffner@unisg.ch
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+41 71 224 70 11

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  • Publication
    Regulatory Effects on Short Term Interest Rates
    (Elsevier, 2021-04-21)
    Ranaldo, Angelo
    ;
    Schaffner, Patrick
    ;
    Vasios, Michalis
    We analyze the effects of prudential regulation on short-term interest rates. The European Market Infrastructure Regulation (EMIR) induces clearing houses (CCPs) to supply large amounts of cash in reverse repurchase agreements (repos). Basel III, in contrast, disincentivizes the borrowing demand by tightening banks’ balance sheet constraints. Using unique regulatory data of CCP investment activity and repo transactions, we find compelling evidence for both the supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences due to the new regulatory framework.
    Type: journal article
    Journal: Journal of Financial Economics
    Volume: 141
    Issue: 2
    URL: https://www.sciencedirect.com/science/article/pii/S0304405X21001434?via%3Dihub
    DOI: 10.1016/j.jfineco.2021.04.016
    URI: https://www.alexandria.unisg.ch/handle/20.500.14171/110472
    Scopus© Citations 11
  • Publication
    Essays in market microstructure
    (Universität St. Gallen, 2023-02-20)
    Schaffner, Patrick
    This doctoral thesis consists of three essays pertaining to the market microstructure of european repo interbank markets and the impact of financial regulation and monetary policy. In 'Euro repo market functioning: collateral is king' we assess how the centrally cleared euro-denominated repo interbank market has performed between 2006 and 2018. We find that the repo market has become the predominant source of short-term funding in the euro money market and has remained stable and functional during periods of intense stress. However, we also highlight that the market is persistently fragmented according to the origin country of pledged collateral, which may impede the efficient redistribution of liquidity. Most importantly, we find that the repo market is increasingly being used to manage collateral inventories rather than funding. The second paper, 'Regulatory effects on short-term interest rates' analyses the impact of prudential regulation on repo markets. Firstly, we show how the European Market Infrastructure Regulation (EMIR) induces clearing houses to supply large amounts of cash against safe collateral in the over-the-counter repo market and find that it spills over to the centrally-cleared repo market, causally lowering interbank repo rates. Secondly, we highlight that Basel III discourages borrowing demand through the leverage-constrainedness of repo dealers, leading to window-dressing and large repo rate drops at quarter-ends. Finally, in 'Tiered reserves and trading behavior in the euro repo market' I investigate the impact of the ECB's two-tier remuneration system on euro repo market functioning and the trading behavior of individual banks. Exploiting the introduction of the tiering in 2019, I show that the fragmentation along collateral lines mostly coincides with the unequal distribution of eurosystem excess liquidity across jurisdictions. Hence, although the tiering imposes the right incentives for greater money market integration, the existing fragmentation of the centrally-cleared repo market makes it ill-suited to facilitate the necessary transactions. I find that the over-the-counter bilaterally-cleared repo market is more likely to be the long-term facilitator of tiering-related trading, and that foreign banks play an important role in supplying and intermediating liquidity across jurisdictions.
    Type: doctoral thesis
    URL: https://nbn-resolving.org/urn:nbn:ch:bel-2457629
    URI: https://www.alexandria.unisg.ch/handle/20.500.14171/107741