The Behavior Of The Bank Repurchase Agreement Market: 1981-1983

Abstract

This paper investigates the bank repurchase agreement (repo) market over the period 1981 to 1983.  Individual bank repo rates were, on average, 200 basis points less than the closely related federal funds rate.  The effects of the Drysdale Securities, Penn Square, and Lombard-Wall failures were investigated.  Although no immediate effect was found, repo rates did increase 100 basis points relative to the federal funds rate approximately six months after the first such incident and immediately following the October, 1983 change in monetary policy.