Key Mechanics of the U.S. Tri-Party Repo Market - FEDERAL RESERVE BANK of NEW YORK

Museum & Gold Tour Regional Economy Data & Statistics Careers Blog Press Center

About the New York Fed
- About the New York Fed
- What We Do
- Governance
- Diversity and Inclusion
- Advisory Groups
- Events
- Vendor Information
- Working within the Federal Reserve System, the New York Fed implements monetary policy, supervises and regulates financial institutions and helps maintain the nation's payment systems.
  
  Do you have a Freedom of Information request? Learn how to submit it.
  
  See the world's largest accumulation of gold as you learn about the New York Fed and Federal Reserve System on a free tour.
  
  The latest Annual Report chronicles the impact of Federal Reserve policies and includes data on the New York Fed's operations.
Markets & Policy Implementation

Economic Research
- Economic Research
- Data & Indicators
- Publications
- PEOPLE
- Liberty Street Economics Blog
- Our economists engage in scholarly research and policy-oriented analysis on a wide range of important issues.
  
  The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality.
  
  The Center for Microeconomic Data offers wide-ranging data and analysis on the finances and economic expectations of U.S. households.
  
  Our model produces a "nowcast" of GDP growth, incorporating a wide range of macroeconomic data as it becomes available.
Financial Institution Supervision
- Financial Institution Supervision
- Supervision & Regulation
  - Circulars
  - Regulations
- Reporting Forms & Instructions
  - Reporting Forms
  - Correspondence
- Bank Applications
- Consumer Protection
  - Community Reinvestment Act Exams
  - Frauds and Scams
- As part of our core mission, we supervise and regulate financial institutions in the Second District. Our primary objective is to maintain a safe and competitive U.S. and global banking system.
  
  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.
  
  The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
Financial Services & Infrastructure
- Financial Services & Infrastructure
- Financial Services & Operations
- Financial Market Infrastructure & Reform
- The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
  
  The New York Fed provides a wide range of payment services for financial institutions and the U.S. government.
  
  The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
  
  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.
Outreach & Education
- Outreach & Education
- Community Development
- School & University Programs
  - High School
  - College and Graduate
- Museum & Learning Center
- Events
  - Upcoming Events
  - Past Events
- The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
  
  The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality.
  
  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.
  
  The College Fed Challenge is a team competition for undergraduates inspired by the working of the Federal Open Market Committee.

Economic Policy Review

Key Mechanics of the U.S. Tri-Party Repo Market

Forthcoming

JEL classification: G18, G20

Authors: Adam Copeland, Darrell Duffie, Antoine Martin, and Susan McLaughlin

During the 2007-09 financial crisis, it became apparent that weaknesses existed in the design of the U.S. tri-party repo market that could rapidly elevate and propagate systemic risk. This article describes key mechanics of the market, focusing on two that have contributed to its weaknesses and impacted market reform efforts: the collateral allocation and “unwind” processes. The authors explain that collateral allocation in the tri-party repo market involves considerable dealer intervention, which can slow settlement processing. The length of time required to allocate collateral has in fact been a significant obstacle to market reform. Another impediment to reform is the unwind process, or the settlement of expiring and continuing repos that occurs before new ones can be settled and continuing ones can be “rewound.” The intraday funding required as a result of the unwind process creates potentially perverse dynamics that increase market fragility and financial system risk. Indeed, a reengineering of the tri-party repo settlement process to be much less reliant on intraday credit is a main goal of current market reform. The authors argue that streamlining the collateral allocation process and eliminating the time gap associated with the unwind could minimize market risk and assist in the reform efforts.

PDF full article PDF

12 pages / 206 kb

Press release

tools