Key Mechanics of the U.S. Tri-Party Repo Market, Adam Copeland, Darrell Duffie, Antoine Martin, and Susan McLaughlin, NY Fed, October 2012.

• “The 2007-09 financial crisis exposed weaknesses in the design of the U.S. tri-party repo market that could rapidly elevate and propagate systemic risk.
• A study of the market identifies the collateral allocation and unwind processes as two key mechanics contributing to the market’s fragility and delaying the reforms.
• The problems stem from the considerable intervention by dealers to allocate collateral and their reliance on intraday financing to unwind, or settle, expiring repos.
• Streamlining the collateral allocation process and eliminating the time gap associated with the unwinding of repos could reduce market fragility and financial system risk.”
• Related postings on the financial system