The Federal Reserve Bank of New York's Liberty Street Blog writes "Stabilizing the Tri-Party Repo Market by Eliminating the 'Unwind'". It says, "On July 6, 2011, the Task Force on Tri-Party Repo Infrastructure -- an industry group sponsored by the New York Fed -- released a Progress Report in which it reaffirmed the goal of eliminating the wholesale 'unwind' of repos (and the requisite extension of more than a trillion dollars of intraday credit by repo clearing banks), but acknowledged unspecified delays in achieving that goal. The 'unwind' is the settlement of repos that currently takes place each morning and replaces credit from investors with credit from the clearing banks. As I explain in this post, by postponing settlement until the afternoon and thereby linking the settlement of new and maturing repos, the proposed new settlement approach could help stabilize the tri-party repo market by eliminating the incentive for investors to withdraw funds from a dealer simply because they believe other investors will do the same. In effect, eliminating the unwind can reduce the risk of the equivalent of bank runs in the repo market, or 'repo runs.' A repurchase agreement is a sale of securities coupled with an agreement to repurchase the securities at a specified price at a later date. In the United States, a tri-party repo is a form of repurchase agreement in which a third party, the clearing bank, intermediates between the cash investor and the collateral provider. A detailed description of the tri-party repo market can be found in the working paper 'The Tri-Party Repo Market before the 2010 Reforms.'"
