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The Effect of Federal Reserve Accounting Rules on the Equilibrium Level of Overnight Repo Rates
Author(s) -
Griffiths Mark D.,
Winters Drew B.
Publication year - 1997
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00135
Subject(s) - repurchase agreement , federal funds , government (linguistics) , settlement (finance) , variance (accounting) , monetary economics , economics , business , accounting , premise , open market operation , bank reserves , reserve requirement , monetary policy , finance , central bank , market liquidity , payment , linguistics , philosophy
This paper addresses whether Federal Reserve Board accounting requirements are sufficiently pervasive to create regularities in government overnight repurchase agreement (repo) rates. US bank settlement regulations allow overnight government repos as substitutes for Federal (Fed) funds. We find that overnight government repos exhibit rate changes and variance regularities consistent with regularities identified in the Fed funds market, which have been shown to result directly from the Federal Reserve regulations and accounting policies governing the US bank settlement process. Thus, we conclude that the overnight government repo rates are influenced in a similar manner by regulatory rules. However, since the rate changes are not large economically, the influence of regulatory accounting practices does not violate the premise of an efficient market.