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Dealer Balance Sheet Constraints Evidence from Dealer-Level Data across Repo Market Segments, Accessible Data
Figure 1. Cross-Market Treasury Repo (CMTR) Spread
Figure 1 plots a single purple line which is the five-day rolling average of our Cross-Market Treasury Repo (CMTR) Spread from February 2018 until July 2024. The figure shows that the CMTR averages around 6 bps over the period shown though there is a large amount of variation. From March 2021 until April 2022 the CMTR was negative and averaged around -2 bps. There is a shaded area from April 2020 until March 2021 which indicates the period SLRs increased due to the exclusion of reserves and Treasury securities from their calculation.
Figure 2. Stylized Illustration of a Dealer’s Balance Sheet
Figure 2 shows a stylized illustration of a dealer’s balance sheet broken down by assets and liabilities. Under the assets column are securities (orange triangle) and matched reverse repo which is split between DVP intermediation activities (yellow rectangle) and other reverse repo (blue rectangle). The liabilities shown are other liabilities (green oval), unmatched repo (gray rectangle), other matched repo (blue rectangle), and tri-party matched repo (purple rectangle). The figure illustrates that the matched, but un-netted, DVP and tri-party intermediation activities increase the size of a dealer’s balance sheet.
Figure 3. Intermediation Spreads and Volumes for SOFR Eligible Collateral
Top panel
The top panel of Figure 3 shows a five-day rolling average comparing our CMTR spread (thick purple solid line) to the DVP repo – tri-party repo spread (thin gray solid line) as well as the DVP reverse repo – DVP repo spread (blue dotted line) using only SOFR trades. The panel shows data from January 2018 until July 2024. The spread between DVP repo and tri-party repo (thin gray solid line) shows that borrowing in DVP is relatively more expensive than borrowing in tri-party. The spread between DVP reverse repo – DVP repo (blue dotted line) shows that inter-market intermediation is less profitable than the cross-market intermediation spread in the CMTR.
Bottom panel
The bottom panel of Figure 3 is a daily frequency line chart showing aggregate firm-level volumes by market for SOFR eligible collateral. The panel shows data from January 2018 until July 2024. There are three lines on the panel, one for tri-party repo volumes (thick blue solid line), another for DVP repo volumes (thin orange solid line), and the last for DVP reverse repo volumes (dark gray dotted line). The panel shows that SOFR-eligible tri-party repo volumes (thick blue solid line) make up roughly 51% of our sample’s aggregate firm-level tri-party repo, and SOFR eligible DVP repo (thin orange solid line) and reverse repo (dark gray dotted line) volumes make up roughly 73% of our sample’s aggregate firm-level DVP volumes each.
Figure 4. DVP Tri-Party Spread vs. GCF Tri-Party Spread
Figure 4 is a daily frequency line chart comparing the 5-day rolling averages of the CMTR Spread (thick purple solid line) and the GCF Tri-party spread (thin dark gray line). The chart shows data from January 2018 until July 2024. The CMTR is plotted as in Figure 1. The GCF Tri-party spread matches the CMTR spread very closely, averaging around 6 bps over the sample period, and turning slightly negative between March 2021 until April 2022 when it was averaging around -1 bps.
Figure 5. CMTR Reverse Repo Volumes vs. GCF Treasury Repo Volume
Figure 5 is a daily frequency line chart comparing the reverse repo volume that makes up the calculation of the CMTR with the GCF Treasury repo volume. The chart shows data from January 2020 until July 2024. CMTR reverse repo volumes (thick blue line) increase gradually from $100 billion in January of 2018 to $250 billion in January of 2023. Between 2023 and the present CMTR reverse repo volumes have flattened out, averaging around $225 billion. GCF Treasury repo volumes (thin red line) average around $70 billion throughout the full sample, reaching around $90 billion by the end of the sample window. Figure 5 shows that the volumes that make up the CMTR are significantly larger than those that make up the GCF Tri-party repo spread.
Figure 6. Number of Dealers in CMTR Spread
Figure 6 is a daily frequency dot plot showing the number of dealers that are used in the calculation of the CMTR spread on each day. The chart shows data from February 2018 until July 2024. For each day there is a purple dot showing the number of dealers included in the calculation on that day. In 2018 the number of dealers averages 5 but drops to 4 for a few months and increases to 6 by the start of 2019. In 2019 the number of dealers increases to 7 and in 2020 and 2021 the number of dealers is almost always 9. In 2022 and beyond, the number of dealers is usually 8 or 9, with some days where the number of dealers drops to 7. Figure 6 shows that although the number of dealers varies over time, the compensation they receive through the CMTR spread is relatively stable.