The Japan Repo Premium and US Dollar Intermediation
Event details
| Date | 25.09.2017 |
| Hour | 12:00 › 13:00 |
| Speaker | Egemen EREN (Bank of International Settlements) |
| Location | |
| Category | Conferences - Seminars |
Japanese banks pay a premium to borrow via repos from US MMFs, even for overnight repos with US Treasury collateral. We show that money markets are not perfectly competitive, and find that MMF bargaining power and the inelastic dollar demand of Japanese banks can explain the premium. Moreover, Japanese banks require funding that improves their liquidity coverage ratio. MMFs typically do not provide such terms in repos. We provide evidence of US dollar repo intermediation by non-Japanese to Japanese banks, with estimated spreads of 35-90 basis points from maturity and collateral transformation. Disruptions in repo intermediation at quarter-ends spill over to FX swaps.
Links
Practical information
- Informed public
- Free