Repo markets are at the core of global financial intermediation. Banks lend cash against collateral overnight to institutional investors and, often, each other. This secured lending market is crucial to all sides. Big institutional holders of safe assets borrow cash that they then invest in higher yielding assets; dealers need collateral to close their positions overnight, as well as to lend the collateral they borrowed on to other counter-parties. The central position of the dealers is due to the fact that they act as market makers for both risk assets and safe assets; that is, they stand ready to buy and sell, or borrow and lend against general collateral, all securities at posted prices. So, they take one side of every big trade — the small-fry are not invited.
The Shadow Price of Dealer Balance Sheets
The Shadow Price of Dealer Balance Sheets
The Shadow Price of Dealer Balance Sheets
Repo markets are at the core of global financial intermediation. Banks lend cash against collateral overnight to institutional investors and, often, each other. This secured lending market is crucial to all sides. Big institutional holders of safe assets borrow cash that they then invest in higher yielding assets; dealers need collateral to close their positions overnight, as well as to lend the collateral they borrowed on to other counter-parties. The central position of the dealers is due to the fact that they act as market makers for both risk assets and safe assets; that is, they stand ready to buy and sell, or borrow and lend against general collateral, all securities at posted prices. So, they take one side of every big trade — the small-fry are not invited.