OFR Short-term Funding Monitor - Insights


Short-term funding markets often require that borrowers pledge securities as collateral against the possibility they may default on a loan. Types of collateral vary and can influence the rate of return charged for short-term funding and the willingness of lenders to extend such funding. The types of securities that appear as collateral can also indicate the security positions for which borrowers need financing. These charts present insights into the types of collateral used to secure funding across various short-term funding markets.

Primary dealer failures to deliver by collateral type

Aggregate failures to deliver securities for primary dealers broken out by type of collateral

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Primary dealers serve as intermediaries in securities markets, receiving securities from sellers and delivering them to buyers. They also serve a unique role in purchasing Treasury securities at auction and acting as a counterparty to the Federal Reserve. In general, dealers have a limited time to deliver securities to settle any obligations to securities buyers. For a variety of reasons, dealers may be unable to meet these obligations—for instance, if they sell a security short that they do not own and are then unable to obtain the security for delivery. The unmet obligation to a buyer is recorded as a failure to deliver. The dealer may be subject to settlement charges as a result.

Failures to deliver are more common when there is underlying illiquidity in the securities market, which makes it more difficult for dealers to buy the securities they are obligated to deliver. High failures to deliver in an asset class may be a sign of underlying illiquidity in that asset class. Failures can also cascade: one firm failing to deliver a security promised to another may cause the second firm to fail on obligations to a buyer. These cascading failures can exacerbate any lack of liquidity in the underlying security as dealers become more hesitant to buy and sell in markets where they face a greater chance of failures.

Series Used

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Suggested Citation

Office of Financial Research, “OFR Short-term Funding Monitor,” refreshed daily, https://www.financialresearch.gov/short-term-funding-monitor/ (accessed ).