Sizing the U.S. Cross-Border Repo Market

Views and opinions expressed are those of the authors and do not necessarily represent official positions or policies of the OFR or Treasury.

Cross-border repurchase agreements (repos) that have one counterparty domiciled outside the United States comprise about a third of the U.S. repo market. Domestic and foreign financial institutions use these instruments to move cash and collateral across the U.S. border and to broaden the investor base to international markets. While these cross-border repos help facilitate the U.S. dollar’s place as the global reserve currency, they can create financial stability vulnerabilities because they can act as channels that transmit shocks across jurisdictions.¹

Data on cross-border repos have been limited, leaving market participants and researchers unable to accurately assess the size of international repo flows. Using the new, non-centrally cleared bilateral repo (NCCBR) data collection, OFR has shown that $1.3 trillion or about one quarter of NCCBR are denominated in a foreign currency.² Still, cross-border repos include all repos with a foreign counterparty, including repos denominated in U.S. dollars. This analysis identifies all repos with a foreign counterparty using the LEI and legal name fields in the NCCBR collection.³

Most cross-border repos occur in the NCCBR segment where they are evenly split between cash flows “out” (domestic lender to foreign borrower) and cash flows “in” (foreign lender to domestic borrower). Foreign companies borrow around $1.2 trillion using NCCBR, and foreign companies lend around $1.3 trillion using NCCBR (Figure 1). Combined, about half of the NCCBR are cross-border. Moreover, about a quarter of NCCBR are denominated in a foreign currency.

Cross-border repos also exist in the tri-party and cleared segments.⁴ Contrary to the cross-border NCCBR, for most of these other cross-border repos, foreign borrowers move cash “out.” This is consistent with net foreign demand for U.S. dollars.

The financial companies that enter cross-border repos are typically banks, dealers, and hedge funds (Figure 2). Hedge funds are active in cross-border repos and are mostly cash borrowers. Both domestic and foreign hedge funds borrow from banks and dealers on the other side of the border. Hedge funds sometimes lend cash (or borrow collateral), which could relate to various relative-value trading strategies.⁵ Banks and dealers enter cross-border repos with other banks and dealers that are often affiliates, which may be related to internal liquidity management. Other entities, including asset managers and investment funds, participate modestly in cross-border repos.

Most cross-border repos (74%) are denominated in U.S. dollars and are typically backed by U.S. collateral. Repos that are denominated in a foreign currency, which occur only in the NCCBR segment, almost always cross-border (Figure 3). The prevalence of U.S. dollars in cross-border repos is consistent with research finding substantial amounts of dollar-denominated repos in European markets.⁶

OFR is working to refine its data, potentially by identifying country of domicile, to enable further examination of emerging risks related to cross-border repos, such as counterparty risk or foreign-exchange risk. While these repos provide market liquidity, they also allow for the transmission of shocks across jurisdictions, and cross-border repos may also influence the effect of U.S. policy actions on repo rates.⁷

---