The shadow costs of repos and bank liability structure
| Autor: | Nataliya Klimenko, Santiago Moreno-Bromberg |
|---|---|
| Přispěvatelé: | University of Zurich, Moreno-Bromberg, Santiago |
| Rok vydání: | 2016 |
| Předmět: |
2606 Control and Optimization
Economics and Econometrics 050208 finance Control and Optimization Rollover (finance) Applied Mathematics media_common.quotation_subject 05 social sciences Liability Equity (finance) 2002 Economics and Econometrics Monetary economics Liquidity risk 10003 Department of Banking and Finance 330 Economics Market liquidity 2604 Applied Mathematics Order (exchange) Debt 0502 economics and business Economics 050207 economics Shadow (psychology) media_common |
| Zdroj: | Journal of Economic Dynamics and Control. 65:1-29 |
| ISSN: | 0165-1889 |
| DOI: | 10.1016/j.jedc.2016.01.004 |
| Popis: | Making use of a structural model that allows for optimal liquidity management, we study the role that repos play in a bank׳s financing structure. In our model the bank׳s assets consist of illiquid loans and liquid reserves and are financed by a combination of repos, long-term debt, deposits and equity. Repos are a cheap source of funding, but they are subject to an exogenous rollover risk. We show that the use of repos inflicts two types of indirect (“shadow”) costs on the bank׳s shareholders: first, it induces the bank to maintain higher liquid reserves in order to alleviate the additional default risk; second, it adds to the cost of long-term debt financing. These shadow costs limit the bank׳s appetite for cheap but unstable repo funding. This effect is, however, weakened under poor returns on risky assets, access to deposit funding and the depositor preference rule. We also analyze the impact of a liquidity coverage ratio, payout restrictions and a leverage ratio on the bank׳s financing choices and show that all these tools are able to curb the bank׳s reliance on repos. |
| Databáze: | OpenAIRE |
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