Papers in this series are designed for a broader audience than OFR working papers. These papers analyze the financial stability implications of financial and regulatory policy, and recent developments in the financial system. Comments and suggestions for improvements to these papers are welcome and should be directed to the authors. OFR publications may be quoted without additional permission. Views and opinions expressed in the OFR Brief Series are those of the authors and do not necessarily represent official positions or policy of the OFR or Treasury.

| By Samuel J. Hempel and R. Jay Kahn

Negative Rates in Bilateral Repo Markets

Interest rates on repurchase agreements (repo) are crucial indicators of conditions in financial markets. This brief discusses negative rates in bilateral repo markets during 2021, and shows that they stemmed from two key sources: (1) broad factors that pushed down general collateral repo rates, and (2) narrower factors that pushed bilateral repo rates below comparable tri-party general collateral rates. Broad factors include increases in bank reserves and decreases in the supply of close alternatives to repo in early 2021. Narrower factors primarily concern demand for specific collateral in the bilateral market. Finally, the brief examines the effects of negative rates on the Secured Overnight Financing Rate (SOFR) and shows the existing construction of the SOFR successfully limits the impact of specific collateral demand on the reference rate. (Brief no. 21-03)

| By Mark E. Paddrik, Carlos A. Ramírez, and Matthew J. McCormick

The Dynamics of the U.S. Overnight Triparty Repo Market

The triparty repurchase agreement (repo) market is pivotal in the daily function of the U.S. financial system by acting as an important source of secured short-term funding. Despite the market’s role, little analysis has been undertaken on its intraday trading and pricing. Using supervisory transaction-level data, this brief aims to fill this gap by providing an overview of the pricing and clearing process for the overnight segment, which regularly provides over $1 trillion in daily funding. Besides highlighting the relevance of the overnight segment within the greater U.S. repo market, we present novel facts about how it behaves, emphasizing the role that participants, collateral, and trading relationships play in the market’s pricing and clearing process. (Brief no. 21-02)

| By R. Jay Kahn and Luke M. Olson

Who Participates in Cleared Repo?

The U.S. repo market, which is split among four markets, links a wide range of banks and nonbanks who lend and borrow short-term against securities pledged as collateral. This brief uses the OFR’s collection of repo market data to highlight some basic facts about the two cleared repo markets. The broadness of cleared repo market participants underscores two increasingly important trends in U.S. financial markets. First, the rising importance of market-based finance among hedge funds and money market funds. Second, the global scope of U.S. financial markets, as a significant portion of net repo borrowing in cleared markets is by foreign banks. The diversity of institution types also means reference rates based on repo transactions represent a broad range of financial market participants. (Brief no. 21-01)

| By Daniel Barth and Jay Kahn

Basis Trades and Treasury Market Illiquidity

The Treasury basis trade exploits the price difference between Treasury bonds and futures. The trade is exposed to financing and liquidity risks that can affect market liquidity. This brief summarizes evidence on the size and extent of basis trading by hedge funds, and on whether these trades contributed to Treasury market illiquidity in March 2020. Timely intervention by the Federal Reserve in the Treasury and repurchase agreement markets may have limited the extent of spillovers that could affect financial stability. (Brief no. 20-01)

| By Stacey Schreft and Simpson Zhang

Network Analysis: Defending Financial Stability by Design

The financial system operates through complex networks that operational failures can disrupt. Some network structures are more resilient to random failures, for example, from natural disasters. Others are more resilient to targeted incidents, such as hacks. This brief illustrates how network analysis can be used to better understand possible risks to financial stability from such disruptions, and possible defenses. (Brief no. 18-02)

| By David C. Johnson and Francis A. Martinez

Form PF Insights on Private Equity Funds and Their Portfolio Companies

This brief describes data from the Securities and Exchange Commission's Form PF that give insights not previously available about the activities of private equity funds. The data allow regulators to monitor trends such as increased borrowing by the companies in which private equity funds invest or shifts in funds' investments. These trends may signal broader changes in the financial system. (Brief no. 18-01)

| By Viktoria Baklanova, Ocean Dalton, and Stathis Tompaidis

Benefits and Risks of Central Clearing in the Repo Market

The repurchase agreement (repo) market is a major source of short-term funding in the financial system. Many repo transactions between dealers are centrally cleared. This brief, using data from the OFR’s interagency bilateral repo data collection pilot, finds economic benefits for dealers in expanding central clearing to transactions between dealers and nondealer clients, but increased risks to the central counterparty. (Brief no. 17-04)

| By Stathis Tompaidis

Measuring Systemwide Resilience of Central Counterparties

This brief proposes a novel way to conduct a U.S. systemwide stress test of central counterparties, or CCPs. The approach takes into account the impacts of losses and defaults at CCPs’ member banks. It would require little extra effort by companies because regulators can use the results of existing stress tests of CCPs. (Brief no. 17-03)

| By Jill Cetina, Bert Loudis, and Charles Taylor

Capital Buffers and the Future of Bank Stress Tests

U.S. bank regulators are phasing in new capital buffers to cushion against shocks. Systemically important banks will hold three buffers, while most banks will hold one. The Federal Reserve may integrate the buffers into stress tests. As a result, some banks would hold more capital. Without the change, stress tests could have a bigger impact on less systemic banks. Another proposal could make stress tests less effective. (Brief no. 17-02)

| By Bertrand Couillault, Jun Mizuguchi, and Matthew Reed

Collective Action: Toward Solving a Vexing Problem to Build a Global Infrastructure for Financial Information

This brief tells the inside story of how partnership and top-level support by government and industry mobilized broad support for creating a worldwide, single identification system for financial data. The development of the global Legal Entity Identifier system reveals important lessons for future efforts to forge consensus and take collective action in finance on a global scale. (Brief no. 17-01)

| By Viktoria Baklanova and Daniel Stemp

Reference Guide to the OFR's U.S. Money Market Fund Monitor

This brief describes the U.S. Money Market Fund Monitor, an online charting tool the OFR launched today to help users take a closer look at the portfolios of U.S. money market funds. To develop the tool, the OFR analyzed more than 4 million records of data about the holdings of about 500 funds. (Brief no. 16-07)

| By Richard Bookstaber and Dror Y. Kenett

Looking Deeper, Seeing More: A Multilayer Map of the Financial System

This brief introduces a three-layer map to illustrate how the circulation of short-term funding, collateral, and assets may spread financial stability risks throughout the U.S. financial system. Potential vulnerabilities and contagion paths emerge as large banks, hedge funds, central clearinghouses, and other market participants become increasingly interconnected. (Brief no. 16-06)

| By Steve Bright, Paul Glasserman, Christopher Gregg, and Hashim Hamandi

What Can We Learn from Publicly Available Data in Banks' Living Wills?

This brief analyzes the public portions of resolution plans, or "living wills," in which large U.S. banks describe how they would manage their own potential failures. The authors found that the public information in the living wills is not sufficient to determine whether these banks could go through bankruptcy without extraordinary government support. (Brief no. 16-05)

| By John Soroushian

Credit Ratings in Financial Regulation: What's Changed Since the Dodd-Frank Act?

The Dodd-Frank financial reform law required federal regulators to remove credit rating references from their regulations. Regulators have responded by substituting definitions of creditworthiness, requiring regulatory models, and hiring third parties other than rating agencies to set credit standards. Each approach has challenges. (Brief no. 16-04)

| By Bert Loudis and Meraj Allahrakha

Systemic Importance Data Shed Light on Global Banking Risks

This brief uses the latest available data to show that U.S. banks remain among the most systemically important, while the systemic importance scores of Chinese banks increased the most. Also with this brief, the OFR introduces an online interactive chart to help users compare the 30 global systemically important banks, or G-SIBs. Regulators will begin phasing in capital surcharges on G-SIBs this year. (Brief no. 16-03)

| By Jill Cetina, Arthur Fliegelman, Jonathan Glicoes, and Ruth Leung

Mind the Gaps: What Do New Disclosures Tell Us About Life Insurers' Use of Off-Balance-Sheet Captives?

This brief analyzes recent regulatory reforms to strengthen disclosure and asset quality standards for U.S. life insurers' use of captive reinsurance. Because of limitations and exemptions, disclosure requirements apply to only 35 percent of the captive industry. (Brief no. 16-02)

| By Viktoria Baklanova, Cecilia Caglio, Marco Cipriani, and Adam Copeland

The U.S. Bilateral Repo Market: Lessons from a New Survey

This brief provides aggregate statistics on U.S. dealers' bilateral repurchase, or repo, agreements and economically equivalent securities lending activities. The data were collected from the U.S.-affiliated securities dealers of nine bank holding companies under a voluntary pilot program run by the OFR and the Federal Reserve System with input from the Securities and Exchange Commission. (Brief no. 16-01)

| By Paul Glasserman and Bert Loudis

A Comparison of U.S. and International Global Systemically Important Banks

Among global systemically important banks (G-SIBs), U.S. banks rank high in systemic importance relative to foreign banks. G-SIBs with higher systemic importance scores do not consistently have higher risk-based capital ratios, despite the importance of capital as a buffer against failure. (Brief no. 15-07)

| By Jill Cetina

Incorporating Liquidity Shocks and Feedbacks in Bank Stress Tests

This brief discusses how stress tests could incorporate four types of shocks — to credit, funding, liquidity, and collateral values — and shows that shocks can affect regulatory ratios for capital and liquidity simultaneously. Additionally, in times of stress, a bank's responses to a binding regulatory ratio can spread shocks to other banks. (Brief no. 15-06)

| By David C. Johnson

Private Fund Data Shed Light on Liquidity Funds

This brief analyzes for the first time new confidential data on liquidity funds collected by the Securities and Exchange Commission on Form PF. Liquidity funds generally invest in short-term assets and have portfolios structured to meet investors' near-term liquidity needs. Compared with prime money market funds, liquidity funds hold assets with relatively longer maturities, have larger holdings of Treasury securities, and invest in a broader range of asset classes. (Brief no. 15-05)

| By Jill Cetina, John McDonough, and Sriram Rajan

More Transparency Needed For Bank Capital Relief Trades

This brief argues that more data are needed to allow investors and counterparties to assess how banks reduce their required regulatory capital by transferring credit risk to third parties. The authors use public regulatory data to show that 18 banks purchased $38 billion in credit protection as of Q4 2014 to obtain regulatory capital relief. They also estimate the impact of these transactions on banks' risk-based capital ratios. (Brief no. 15-04)

| By Viktoria Baklanova

Repo and Securities Lending: Improving Transparency with Better Data

This brief focuses on data gaps in U.S. repurchase agreements and securities lending markets. A paucity of data and a limited understanding of the institutional structure of these markets prevented regulators from fully identifying and responding to vulnerabilities during the 2007-09 financial crisis. The OFR and Federal Reserve are conducting a pilot data collection to close these data gaps. (Brief no. 15-03)

| By Ted Berg

Quicksilver Markets

This brief argues that U.S. stock prices today appear high by historical standards, using a quantitative threshold to identify potential stock market bubbles. Although the financial stability implications of a market correction could be moderate due to limited liquidity transformation in the U.S. equity market, the brief discusses other financial stability issues that may be more relevant, such as leverage, compressed pricing of risk, interconnectedness, and complexity. (Brief no. 15-02)

| By Meraj Allahrakha, Paul Glasserman, and H. Peyton Young

Systemic Importance Indicators for 33 U.S. Bank Holding Companies: An Overview of Recent Data

This brief analyzes new data about the nation's most systemically important bank holding companies — financial institutions whose failure could pose the greatest threat to the international financial system. (Brief no. 15-01)