Abstract
In this paper we investigate the impact of changes in initial margins on the cost of funding in the Italian repo market using a unique data-set that covers the Sovereign debt crisis (between January 2011 and February 2012) and the subsequent phase of abundant central bank liquidity. The analysis shows that in stressed times an increase in the level of initial margins had a positive and significant effect on the cost of short-term funding; on average, for each 1 percentage point variation in the margin, a 10 basis points increase in repo rates followed. We also find that liquidity and credit risk, as well as variables capturing idiosyncratic pressures in funding needs, exerted a significant and upward impact on the cost of short-term funding. On the other hand, in the period between March and December 2012, when liquidity was abundant due to monetary policy easing, the relationship between initial margins and the cost of short-term funding became negative as liquidity takers were less in need of funds.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: The North American Journal of Economics and Finance
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
