Who Ran on Repo?
The sale and repurchase (repo) market played a central role in the recent financial crisis. From the second quarter of 2007 to the first quarter of 2009, net repo financing provided to U.S. banks and broker-dealers fell by about $1.3 trillion - more than half of its pre-crisis total. Significant details of this "run on repo" remain shrouded, however, because many of the providers of repo finance are lightly regulated or unregulated cash pools. In this paper we supplement the best available official data sources with a unique market survey to provide an updated picture of the dynamics of the repo run. We provide evidence that the run was predominantly driven by the flight of foreign financial institutions, domestic and offshore hedge funds, and other unregulated cash pools. Our analysis highlights the danger of relying exclusively on data from regulated institutions, which would miss the most important parts of the run.
The research funding for this paper was all from regular Yale funds. We have no relevant financial relationships to disclose. We thank Carol Bertaut, Susan Hume McIntosh, and seminar participants at the Federal Reserve Board of Governors for helpful comments and Lei Xie for research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Gary B. Gorton & Andrew Metrick & Chase P. Ross, 2020. "Who Ran on Repo?," AEA Papers and Proceedings, vol 110, pages 487-492.