Securitized banking and the run on repo

Gorton, G., & Metrick, A. (2008). Securitized banking and the run on repo. Journal of Financial Economics, 104(3), 425-451.

Type

Journal article

Intellectual base

Primary research

Year

2008

Volume

104

Issue

3

Pages

425-451

DOI

10.1016/j.jfineco.2011.03.016

DOI registrant

Elsevier

Link

https://doi.org/10.1016/j.jfineco.2011.03.016

Cited from

economics_finance

Cited by

4 citations across 4 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Liquidity
  • When something seems slow or expensive to move, liquidity asks: Where is the friction, and why does it exist? Gorton and Metrick (2012), in their analysis of the 2007–2008 "run on repo," demonstrated this diagnostic power outside conventional banking: securitized short-term funding markets failed not because collateral assets had vanished but because rising haircuts—micro-frictions in the conversion mechanism—propagated into a system-wide liquidity collapse.

    This sourceDocuments the 2007–2008 collapse of securitized short-term funding markets as a "run on repo": rising haircuts on repo collateral propagated micro-frictions in conversion mechanisms into a system-wide liquidity collapse, illustrating friction-in-state-conversion outside conventional deposit banking.

Domain-specific

• Bank Run
  • No one stands in line, but the loss of rollover drains funding within days

    Supported in partVerified against the source

    Read by an automated reader; not a human review. How support was checked

• Collateral Squeeze
  • As subprime losses mounted, lenders marked the collateral down and, crucially, widened the haircuts — Gorton and Metrick's repo-haircut index, dominated by securitized bonds, rose from zero in early 2007 to nearly 50% at the peak of the crisis in late 2008, and some classes of structured debt stopped being accepted as collateral at all.

    SupportedVerified against the source

    Read by an automated reader; not a human review. How support was checked

• Funding Fragility
  • Money-market funds — short-term redeemable shares against commercial paper and longer assets, hit by mass redemption stress (2008, 2020). Repo and wholesale-funding markets — overnight rolling of long, illiquid collateral, subject to freezes when funders stop rolling (2007–08).

    Supported in partVerified against a saved copy of the source

    “The Panic of 2007-2008 was a run on the sale and repurchase market (the "repo" market), which is a very large, short-term market that provides financing for a wide range of securitization activities and financial institutions.”

    Read by an automated reader; not a human review. How support was checked

Verification

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