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The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
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The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.
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The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
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| May 2006 Volume 12, Number 1 |
| JEL classification: G10, G18, G28 |
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Author: Kenneth D. Garbade Contracting conventions for repurchase agreements, or repos, changed significantly in the 1980s. The growth of the repo market, new uses for repos, and the emergence of new and previously unappreciated risks prompted market participants to revise their contracting conventions. This article describes the evolution of the conventions during that period, focusing on three key developments: the recognition of accrued interest on repo securities, a change in the application of federal bankruptcy law to repos, and the accelerated growth of a new form of repo—tri-party repo. The author argues that the emergence of tri-party repo owed to the efforts of individual market participants acting in their own economic self-interest. By comparison, recognition of accrued interest and the change in bankruptcy law were effected, respectively, by participants taking collective action and seeking legislative relief because uncoordinated, individual solutions would have been more costly. These developments offer important insights into how markets operate: contracting conventions that are efficient in one market environment may have to be revised when the environment changes, and institutional arrangements can change in any number of ways. |
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16 pages / 489 kb
