Collateral Cycles
Series
School of Finance Working Paper
Type
working paper
Date Issued
2023-04-05
Author(s)
Abstract
Using supervisory data from UK clearinghouses (CCPs), we document the presence of a collateral cycle in which cash goes back and forth from financial markets to CCPs. In the onward phase, clearing members provide cash to CCPs to meet margin requirements. This pattern is procyclical as the pledged collateral increases with market volatility and puts upward pressure on repurchase agreement (repo) rates. In the backward phase, CCPs return the cash to the financial markets via reverse repos and bond purchases, in compliance with regulation that requires them to collateralise their cash holdings. The cash given back by CCPs generates downward pressure on repo rates in a counter-cyclical manner.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Publisher
SoF HSG
Volume
2023
Pages
45
Event Title
SGF Conference 2024
Event Location
Zürich
Event Date
22.4.2024
Subject(s)
Division(s)
Contact Email Address
sgf-conference@fmpm.ch
Eprints ID
269369