Jasper Knyphausen
- 15 October 2026
- WORKING PAPER SERIES - No. 3301Details
- Abstract
- We study how frictions impact haircut setting in repo markets. Using transaction-level supervisory data and exploiting the 2021 introduction of the binding leverage ratio requirement, we show that three frictions jointly shape haircuts in the bilateral dealer-to-client segment: dealer balance sheet constraints, collateral convenience yields, and client outside options. In collateral-driven repos, binding leverage constraints and broader client outside options both raise haircuts, while higher convenience yields push them down. In funding-driven trades, the leverage constraint has no effect, higher convenience yields raise haircuts through the rehypothecation channel, and broader client outside options lower them. We rationalise these patterns in a bilateral bargaining model with periodic haircut renegotiation. Consistent with the model, constrained dealers exhibit higher repo-rate volatility and weaker pass-through of ECB policy rate changes in the collateral-driven segment. Post-crisis bank regulation thus carries potential unintended consequences for repo market functioning and the transmission of monetary policy.
- JEL Code
- C78 : Mathematical and Quantitative Methods→Game Theory and Bargaining Theory→Bargaining Theory, Matching Theory
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 7 January 2026
- WORKING PAPER SERIES - No. 3168Details
- Abstract
- This paper examines the relevance of banks’ exposure to climate transition risk in the interbank lending market. Using transaction-level data on repo agreements, we first establish that banks with higher exposure to transition risk face significantly higher borrowing costs. This premium is a combination of a risk premium, compensating lenders for increased credit risk, and an inconvenience premium, reflecting the sustainability preferences of key dealer banks. We also find that the transition risk premium intensifies during periods of financial stress, indicating that climate-induced risks amplify existing vulnerabilities in financial markets. Furthermore, the rate segmentation caused by transition risk premium has implications for the transmission of monetary policy. Transition risk is an important factor in financial stability and policy design.
- JEL Code
- Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Q58 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Government Policy