Regulatory Effects on Short-Term Interest Rates
Type
conference speech
Date Issued
2019-11-08
Author(s)
Abstract
We analyse the effects of EMIR and Basel III regulations on short-term interest rates. EMIR requires central clearing houses (CCP) to continually acquire safe assets, thus expanding the lending supply of repurchase agreements (repo). Basel III, in contrast, disincentivises the borrowing demand by tightening banks' balance sheet constraints. Using unique datasets of repo transactions and CCP activity, we find compelling evidence for both supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences originated from the new regulatory framework.
Language
English
Event Title
15th Annual Central Bank Conference on the Microstructure of Financial Markets
Event Location
Stockholm
Event Date
7-8 Nov 2019
Subject(s)
Eprints ID
258352