What drives repo haircuts? Evidence from the UK market

Julliard, Christian ORCID: 0000-0001-8177-7441, Pinter, Gabor, Todorov, Karamfil, Wijnandts, Jean-Charles and Yuan, Kathy ORCID: 0000-0001-9895-7545 (2025) What drives repo haircuts? Evidence from the UK market. Management Science. ISSN 0025-1909 (In Press)

Text (Repo_haircut_accepted_with_authors_info) - Accepted Version Pending embargo until 1 January 2100. Available under License Creative Commons Attribution. Download (1MB)

Abstract

Using a unique transaction-level dataset covering the UK bilateral repomarket, we show that only 61% of the repos are backed by high-quality collateral, with banks intermediating liquidity across counterparties and using CCPs mainly for high-quality collateral and netting benefits. Haircuts reflect both collateral and borrower characteristics: larger, higher-rated, less levered, less sophisticated borrowers, and thosewith repeated relationships receive lower or even zero haircuts. Borrower attributes explain as much variation in haircuts as collateral quality, while lender liquidity and default risk play little role. We also document a pecking order in collateral use, with higher-quality assets pledged first.

Item Type:	Article
Additional Information:	© 2025 The Author
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
Date Deposited:	22 Sep 2025 10:54
Last Modified:	24 Sep 2025 10:57
URI:	http://eprints.lse.ac.uk/id/eprint/129555

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