Banking on bonds: The new links between states and markets

Gabor, D. and Ban, C. (2016) Banking on bonds: The new links between states and markets. JCMS: Journal of Common Market Studies, 54 (3). pp. 617-635. ISSN 00219886 Available from: http://eprints.uwe.ac.uk/30430

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Publisher's URL: http://dx.doi.org/10.1111/jcms.12309

Abstract/Description

This article examines a neglected structural transformation in European finance: the growing importance of government debt as collateral for Europe's repo markets, where banks borrow cash against collateral. Seduced by the promises of repo market-driven financial integration, the EU institutions and Member States encouraged private finance to generate its own architecture for the European repo market in the early years of the euro, sidelining known problems about systemic fragilities. These fragilities materialized after Lehman Brothers’ collapse and were exacerbated by the ECB's collateral policies. The European sovereign debt crisis shows that governments, just like private asset issuers, can rapidly become vulnerable to repo pro-cyclicality and collateral crises.

Item Type:Article
Uncontrolled Keywords:ECB, collateral, repo, market liquidity, fire sales
Faculty/Department:Faculty of Business and Law > Department of Accounting, Economics and Finance
ID Code:30430
Deposited By: Dr D. Gabor
Deposited On:25 Nov 2016 11:36
Last Modified:30 Jan 2017 10:31

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