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Repo markets, counterparty risk and the 2007/2008 liquidity crisis

Ewerhart, Christian; Tapking, Jens - European Central Bank - 2008

A standard repurchase agreement between two counterparties is considered to examine the endogenous choice of collateral assets, the feasibility of secured lending, and welfare implications of the central bank’s collateral framework. As an important innovation, we allow for two-sided...

Persistent link: https://www.econbiz.de/10005222299

Liquidity hoarding and interbank market spreads: the role of counterparty risk

Heider, Florian; Hoerova, Marie; Holthausen, Cornelia - European Central Bank - 2009

banks to have private information about the risk of their assets. We show how banks’ asset risk affects funding liquidity in … state with adverse selection and elevated rates; and iii) market breakdown with liquidity hoarding. We provide an … of unsecured rates and excess reserves banks hold, as well as the inability of massive liquidity injections by central …

Persistent link: https://www.econbiz.de/10008558914

The pricing of subprime mortgage risk in good times and bad: evidence from the ABX.HE indices

Fender, Ingo; Scheicher, Martin - European Central Bank - 2009

, liquidity and risk appetite. The results imply thatdeclining risk appetite and heightened concerns about market illiquidity …

Persistent link: https://www.econbiz.de/10005866585

Risk-sharing or risk-taking? Counterparty risk, incentives and margins

Biais, Bruno; Heider, Florian; Hoerova, Marie - European Central Bank - 2012

We analyze optimal hedging contracts and show that although hedging aims at sharing risk, it can lead to more risk-taking. News implying that a hedge is likely to be loss-making undermines the risk-prevention incentives of the protection seller. This incentive problem limits the capacity to...

Persistent link: https://www.econbiz.de/10010686736

Clearing, counterparty risk and aggregate risk

Biais, Bruno; Heider, Florian; Hoerova, Marie - European Central Bank - 2012

We study the optimal design of clearing systems. We analyze how counterparty risk should be allocated, whether traders should be fully insured against that risk, and how moral hazard affects the optimal allocation of risk. The main advantage of centralized clearing, as opposed to no or...

Persistent link: https://www.econbiz.de/10010686807

An MVAR framework to capture extreme events in macro-prudential stress tests

Guarda, Paolo; Rouabah, Abdelaziz; Theal, John - European Central Bank - 2012

Severe financial turbulences are driven by high impact and low probability events that are the characteristic hallmarks of systemic financial stress. These unlikely adverse events arise from the extreme tail of a probability distribution and are therefore very poorly captured by traditional...

Persistent link: https://www.econbiz.de/10010686879

Modeling emergence of the interbank networks

Hałaj, Grzegorz; Kok, Christoffer - European Central Bank - 2014

placements are accepted taking into account funding diversification benefits. The model offers some interesting insights into how …

Persistent link: https://www.econbiz.de/10010753748

An empirical study on the decoupling movements between corporate bond and CDS spreads

Alexopoulou, Ioana; Andersson, Magnus; Georgescu, Oana Maria - European Central Bank - 2009

factors and liquidity. Our analysis confirms the existence of a long-run relationship between the two markets, and the … CDS markets becoming more sensitive to systematic risk while cash bond markets priced in more information about liquidity …

Persistent link: https://www.econbiz.de/10005049555

Liquidity premia in German government bonds

Ejsing, Jacob; Sihvonen, Jukka - European Central Bank - 2009

find that on-the-run status has only a negligible effect on the liquidity and pricing once other factors have been … market, leads to significant liquidity spillovers. Specifically, we find that bonds which are deliverable into futures …

Persistent link: https://www.econbiz.de/10005049556

Does liquidity matter? Properties of a synthetic divisia monetary aggregate in the euro area

Stracca, Livio - European Central Bank - 2001

M3. More in general, the paper lends further support to the view that money and 'liquidity' should be assigned an …

Persistent link: https://www.econbiz.de/10005530804