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Only Paul Could Go To Changchun

The Run on Repo and the Fed’s Response

12/10/2017

 
Here.

Ten years after the crisis began in the first quarter of 2007, there is no consensus on the cause of the crisis. Explanations abound. It is unfortunate that there is a lack of data on the shadow banking system, which makes it difficult to understand what happened. But, this lack of data is the defining feature of a banking system which was unknown prior to the financial crisis. Hence, it is called the ”shadow” banking system. The absence of data does not mean that we cannot understand what happened, but it does make it harder. In this paper, we use repo haircut data from the bilateral repo market and study the dynamics of the financial crisis. We provide evidence of the run on repo by showing that the increase in haircuts on certain asset categories corresponded to banks taking those specific assets to the emergency lending facilities. In other words, there was a run on repo.


From:

Gary Gorton
Toomas Laarits
Andrew Metrick
Yale University

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