Alexandru-Stefan Goghie (researcher) & Matteo Giordano (PhD candidate SOAS)

Alexandru-Stefan Goghie (independent researcher) and Matteo Giordano (PhD candidate SOAS) are part of paper collaboration around Steffen Murau (Post-doc, Research Associate, LMU). Steffen is a well-known researcher in the Money View community with an equally well-known series of studies on today's offshore US-Dollar system as a hierarchical web of interlocking balance sheets. Published by the Global Economic Governance Initiative (GEGI) at the Global Development Policy (GDP) Center of Boston University. Discussant are going to be Ioana Neamțu (Research Economist, Bank of England) and Godfried de Vidts (Senior Advisor, European Repo and Collateral Council, International Capital Market Association)

This paper on repo markets touches the Eurex GC pooling basket and its transformation before and after 2008. Among the objectives of the paper was to document the evolution of the collateral framework of CCPs, especially Eurex, and the transition from a unified market of government bonds to a fragmented one. As they highlight the implications of this transformation, they show that the use of certain collateral has changed relatively following this fragmentation. They are looking at repo markets through a lens of hierarchy and are able to distinct different consequences, due to that.

Abstract – Encumbered Security: Conceptualizing Vertical and Horizontal Repos in the Euro Area
Despite the paramount centrality of repurchase agreements (repos) in today’s market-based finance regime, both conceptual and empirical questions about European repo markets are insufficiently explored as contradictory legal and accounting treatments make their on-balance-sheet representation intricate. Drawing on the literature on monetary hierarchy, we make three connected conceptual arguments: First, we argue that the balance sheet mechanics of repos vary if the counterparties involved are on hierarchically different levels (“vertical repos”) or on the same hierarchical level (“horizontal repos”). While the vertical repo mechanism implies money creation, the horizontal repo mechanism only lends on pre-existing money. Second, we provide a coherent representation of the security posted as repo collateral, which—as to contemporary regulations—does not leave the balance sheet of the repo borrower but changes its status from being held outright to being “encumbered”. Third, we introduce an on-balance-sheet notation of the collateral framework as a means of the repo lender to alter the elasticity of the funding provided. Applying our methodology on two cases—vertical repos created by the Eurosystem for monetary policy implementation and horizontal repos used in the European interbank market—offers an innovative and consistent way to represent changes in the collateral frameworks that affect the elasticity space in the Euro area’s monetary architecture. Our analysis yields two main contributions: We offer an innovative understanding of different mechanisms for repo creation based on monetary hierarchy, and we put forth a data-driven empirical analysis of repos in Europe aimed at supporting our conceptual elaborations.

FYI, we are organizing an upcoming two-day in person event Wed. 21. & Thu. 22. Jun. 2023 in Frankfurt at Goethe University and at the European Central Bank respectively. Deadline for application will be 30. Apr. 2023, comfortably after the end of this one-day intro series. More information about the upcoming in person event and how to apply, please see below.

More information
https://ysi.ineteconomics.org/project/640874043d9a991b5e5fb87b/event/6408830b3d9a991b5e5fc0fd

Apply here
https://fs8.formsite.com/CNZLjX/1tgciley2z/index