Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations

Repo auctions are multiunit auctions regularly used by central banks to inject liquidity into the banking sector. Banks have a fundamental need to participate because they have to satisfy reserve requirements. Superficially, repo auctions resemble treasury auctions; the format and rules are similar and there is an active secondary market for the underlying asset. Using a bidder level dataset of the European Central Bank’s main repo auctions, however, we find evidence that the economic issues in repo auctions may be very different. Unlike what has been documented in the treasury auctions literature, we find no evidence that private information and the winner’s curse are important issues. Instead our findings suggest that bidders are more concerned with the loser’s nightmare, collateral, and future interest rate reductions by the ECB. Small and large bidders use different strategies, with large bidders performing better.