European Central Bank working paper finds euro-area repo collateral reuse is widespread but does not generate dealer liquidity windfalls

The European Central Bank published a working paper analysing collateral reuse in euro-area repo markets and testing whether securities dealers systematically extract “liquidity windfalls” by earning haircut wedges when reusing collateral. Using confidential regulatory data on securities financing transactions, the authors find that collateral reuse is a material feature of repo activity, but do not find evidence that dealers consistently obtain extra liquidity via haircut differentials. Based on roughly 15 million repo transactions from January 2021 to February 2025, the study estimates that about 11.6% of European repo transaction volume relies on reused securities, averaging more than EUR 49 billion per day, with reused bonds typically moving through three intermediaries before returning. Reuse is more likely in smaller and shorter trades and varies strongly with counterparty attributes and prior linkages, while detailed bond characteristics such as specialness, maturity and haircuts add little explanatory power once firm identities are accounted for; stress episodes such as the March 2023 turmoil temporarily depress reuse. To assess liquidity windfalls, the paper compares haircuts across the “receive” and “deliver” legs when collateral is reused and reports that average differentials are absent or often negative, including when a dealer intermediates between two non-dealers and when positions move from bilateral trading into central clearing, implying that policy-rate changes would be expected to transmit through repo pricing and tenor rather than abrupt shifts in haircuts. The paper notes that the views expressed are those of the authors and do not necessarily reflect those of the ECB.