Discussion — Lecture 7: Repos, Postponing Settlement

This session covers Lecture 7: Repos, Postponing Settlement

Repurchase agreements (repos or RP) are a form of market-based collateralized lending that can be used for interbank lending much like the Fed Funds market. Borrowers give securities as collateral to borrow money.

A key difference between Fed Funds and repo markets is that anyone who can put up the collateral can borrow in the repo markets. This is unlike the Fed Funds market, where only institutions with accounts at the Fed (e.g. American commercial banks) are allowed to participate.

Something to keep in mind with the repo market is that a flow of money always has a corresponding flow of collateral. If the securities used as collateral lose their value, then that impedes the flow of money through the market. Firms become less able to borrow and less able to roll over their funding independent of anything to do with their own creditworthiness. The Fed Funds market doesn't have this problem.

Lecture Notes

Lecture 7 Discussion Thread