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Working Papers

Leverage, Security Bubbles and the Regulation of Repo Markets

(2018)

Jaime Luque
Jean-Marc Bottazzi
Mario Pascoa

We examine the impact of regulation on repo, leverage, Ponzi schemes and bubbles. Repo Ponzi schemes can be done by creditors who collect haircut and then reuse the collateral that was pledged to them. In bilateral repo, only dealers have such haircut benefit and regulation consists in limiting dealers positions. In exchanges, the segregation of the haircut avoids Ponzi schemes. However, as we illustrate, both cases allow for bubbles when agents are not uniformly impatient. We also show that all agents may be worse off if repo markets were absent and that bubbles are robust to the endogenous issuance of the securities.

regulation on repo, leverage, Ponzi schemes, bubbles

Finance

September, 2018

Jean-Marc Bottazzi, Jaime Luque and Mario Pascoa. "Leverage, Security Bubbles and the Regulation of Repo Markets" (2018)
Available at: http://works.bepress.com/luque/16/

Creative Commons License This work is licensed under a Creative Commons CC_BY-NC-ND International License.