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  4. May 2020
  5. Understanding Collateral Re-use in the US Financial System

Understanding Collateral Re-use in the US Financial System

  • Sebastian Infante
  • Charles Press
  • Zack Saravay
AEA Papers and Proceedings
vol. 110, May 2020
(pp. 482-86)
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Abstract

We document how primary dealers use and re-use collateral in the United States. Using confidential supervisory data, we map how collateral flows through individual dealers, identifying whether the collateral is encumbered or rehypothecated. From these data we estimate the degree of collateral re-use at the dealer level. We find a high degree of US Treasury re-use, for which we posit three possible drivers: (1) intermediation of cash, (2) intermediation of collateral, and (3) "stripping" and distribution of their safe asset benefits. This work contributes to research aimed at understanding how collateral circulation improves market functioning but may lead to fragility.

Citation

Infante, Sebastian, Charles Press, and Zack Saravay. 2020. "Understanding Collateral Re-use in the US Financial System." AEA Papers and Proceedings, 110: 482-86. DOI: 10.1257/pandp.20201099

Additional Materials

JEL Classification

  • E44 Financial Markets and the Macroeconomy
  • E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
  • G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
  • E44 Financial Markets and the Macroeconomy
  • E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
  • G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages