Banks and other complex financial institutions continue to face challenges in meeting return on equity (ROE) expectations. This is due to the substantial balance sheet de-risking and unprecedented regulatory reform in the wake of the global financial crisis of 2007/08 and subsequent market conditions such as the European sovereign debt and the recent COVID-19 crises.
The trading of repurchase agreements (repo) is a cornerstone of the wholesale financial markets. Repo markets provide a core source of funding, facilitate collateral mobilization, and are a key transmission mechanism for monetary policy. However, post-crisis reforms to banking institutions' capital and liquidity requirements have profoundly impacted the repo market.
This whitepaper provides a case study that explores Eurex’s repo clearing models for sell-side and buy-side clients and the opportunities they afford for balance sheet, leverage, and risk-based capital optimization.