Systemic Risk in the Repo Market

Alexander Shkolnik
University of California, Berkeley (UC Berkeley)

The repo market is a crucial part of the US financial infrastructure. The complex inter-connectedness of financial institutions and the practice of rehypothecation, the re-use of repo collateral, amplify its inherent systemic risk. In contrast to static models in prior literature, we propose and analyze a dynamic model of a networked repo market. We illustrate the complex phenomena exhibited by the model and study its robustness and fragility properties using tools from ODE stability theory.

Joint work with Robert Anderson (UC Berkeley), Kay Giesecke (Stanford) and Lisa Goldberg (UC Berkeley)

Presentation (PDF File)

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