The leverage ratio and liquidity in the gilt and gilt repo markets

Abstract

The leverage ratio and liquidity in the gilt and gilt repo markets Article (Accepted Version) http://sro.sussex.ac.uk

Bank Leverage Limits and Regulatory Arbitrage: Old Question‐New Evidence

“…Our findings extend recent studies of leverage rule arbitrage in the securities repo (repurchase) market (Bicu, Chen, and Elliott 2017, Allahrakha, Cetina, and Munyan 2018, Kotidis and van Horen 2018, and Bucalossi and Scalia 2016). The first three studies find evidence of banks reducing repo activity in response to leverage limits in the United States or the United Kingdom.…”

How do secured funding markets behave under stress? Evidence from the gilt repo market

“…This is a relatively new trend, following a transitional phase prior to 2016 when the post-crisis environment had affected repo market functioning and consequently volumes traded, as documented in CGFS (2017) for different jurisdictions. For the UK, Bicu-Lieb et al (2020) show that gilt repo liquidity worsened during the period when the leverage ratio policy was announced (2010)(2011)(2012)(2013)(2014)(2015) and that gilt repo liquidity had become less resilient. Noss & Patel (2019) find that there was a reduction in intermediation by dealers between 2014 and 2016, followed by an improvement between 2016 and 2018.…”

“…This trend, already noted in a report by the Committee of the Global Financial System (2017), is likely to be driven by the option to net transactions with a CCP, thereby not affecting the size of a bank's balance sheet as reported for regulatory purposes. 6 Previous empirical research, conducted on data for normal times, highlights that the introduction of the UK leverage ratio affected the capacity of dealers to intermediate in the gilt repo market (Bicu-Lieb et al, 2020;Kotidis & Van Horen, 2018).…”

“…The second strand of the literature empirically analyses dealer intermediation in the repo market in the post-crisis regulatory framework. Bicu-Lieb et al (2020) find that gilt repo liquidity worsened during the period when the UK leverage ratio policy was announced, and Kotidis & Van Horen (2018) show that it is indeed dealers subject to a more binding leverage ratio that have reduced liquidity supply after a tightening of reporting requirements in January 2017. Noss & Patel (2019) find that the gilt repo market is less able to accommodate an increase in demand for intermediation after the introduction of the UK leverage ratio.…”

Analysis of Financial Ratio on Earning Per Share in Construction Companies in Indonesia

“…That is why a large number of studies pay a lot of attention to profitability aside from other financial performance parameters, such as liquidity, activity ratio, and leverage/solvency. The leverage ratio is an indicator of company solvency (Lieb et al, 2019). The solvency ratio is a key metric as it assesses the company's ability to pay its debt and other financial obligations.…”