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U.S. agency collecting bilateral repo data for benchmark rates
December 8, 2016 / 7:06 PM / in a year

U.S. agency collecting bilateral repo data for benchmark rates

(Reuters) - The U.S. Office of Financial Research has begun gathering data on bilateral repurchase agreements in an effort to increase transparency on the funding market, the head of the agency said on Thursday.

On Nov. 4, the New York Federal Reserve said it was working jointly with the OFR on three benchmark rates based primarily on interest rates on tri-party repos.

One of these repo rates could serve as a possible replacement for the London Interbank Offered rate, or Libor, which is a benchmark for some $350 trillion worth of financial products worldwide. Banks and lenders use dollar Libor to set interest rates on loans for consumers and companies.

Libor has been in regulators’ crosshairs since its credibility was tarnished by a rate-rigging scandal emerging from the 2008 financial crisis. About a dozen global banks collectively have paid tens of billions of dollars in fines to settle the matter.

Repos are a major source of short-term funding for global financial systems.

There are two types of repos.

In a tri-party repo, an investor extends a loan to a bond dealer who typically uses a Treasury issue as collateral. A clearinghouse manages the collateral, keeps track of the repo and makes sure that payments are made on time.

In a bilateral repo, the loan is arranged and settled directly between a borrower and a lender.

Tri-party dollar repos totaled about $1.7 trillion, making up the bulk of this $2.2 trillion funding sector, according to data form the Securities Industry and Financial Markets Association.

“In the future, adding bilateral repos to an alternative rate would make its coverage more comprehensive,” OFR Director Richard Berner wrote in a blog post published on Thursday.

Data on bilateral repos are scant. Thus OFR has started collecting it in collaboration with the Federal Reserve and the Securities and Exchange Commission, he said.

“The OFR is uniquely situated to collect such data that may lie beyond the reach of other regulators,” Berner said.

Reporting by Richard Leong; Editing by Alan Crosby

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