Joint work with Patrick Schaffner and Michalis Vasios

Abstract:

We analyse the effects of EMIR and Basel III regulations on shortterminterest rates. EMIR requires central clearing houses (CCP) tocontinually acquire safe assets, thus expanding the lending supply ofrepurchase agreements (repo). Basel III, in contrast, disincentivisesthe borrowing demand by tightening banks’ balance sheet constraints.Using unique datasets of repo transactions and CCP activity, we findcompelling evidence for both supply and demand channels. The overalleffects are decreasing short-term rates and increasing market imbalancesin various forms, all of which entail unintended consequencesoriginated from the new regulatory framework.