Lessons from the Bilateral Repo Data Collection Pilot
Published: January 13, 2016
An OFR brief released today analyzed new data about a critical part of the U.S. financial system. The brief provides the first statistics on the U.S. market for bilateral repurchase agreements (repos).
The data are from U.S. dealers affiliated with nine bank holding companies. They shared their data through a voluntary pilot program run by the OFR and the Federal Reserve System (Fed), with input from the Securities and Exchange Commission (SEC).
The repo market provides short-term funding for financial companies. It also facilitates market liquidity. During the financial crisis, distress hit the repo market and fed back into other parts of the financial system. Oversight of this market and data about it has improved since the crisis. Despite that, the market remains opaque to regulators and market participants (see related brief).
The authors estimated the size of the U.S. bilateral repo market at about $1.8 trillion in repos and $3 trillion in reverse repos. (In repo transactions, dealers sell securities and receive cash. In reverse repo deals, dealers deliver cash and receive securities.)
The pilot participants accounted for about half of both repos and reverse repos. On average, they financed about $960 billion in the bilateral repo market and provided about $1.6 trillion in funding to their clients.
The pilot focused on bilateral repo trades. To provide a more complete picture of funding sources, it also included dealers’ securities lending trades collateralized by cash. These securities lending trades are similar to repo trades in that market participants lend securities for a fee, using cash as collateral.
The pilot found challenges with data collection. For example, it revealed weaknesses in existing reporting technology. Because the pilot was voluntary, it used firms’ internal reporting systems and did not impose data standards. This may have decreased the quality of the data.
Only a limited number of major U.S. broker-dealers participated in the pilot. The brief concludes that a permanent data collection would encourage firms to improve data quality and provide a fuller picture of the market. U.S. regulators are working with international groups such as the Financial Stability Board to align data reporting definitions, concepts, and requirements.
The OFR, Fed, and SEC also are now conducting a second pilot data collection focusing on the securities lending market, which encompasses market participants other than dealers. We hope to release results from that collection in the coming months.
Stacey Schreft is Deputy Director for Research and Analysis at the Office of Financial Research