Safe Asset Carry Trade

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.

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Regulatory Effects on Short-Term Interest Rates

Ranaldo

Schaffner

Vasios³

2019

SSRN Journal

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Safe Asset Carry Trade

Cited by 1 publication

References 64 publications

Regulatory Effects on Short-Term Interest Rates

Regulatory Effects on Short-Term Interest Rates

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