Antoine Martin and Susan — Financial Innovation: The Origins of the Tri-Party Repo Market

First in a two-part series 

The conventional wisdom about financial innovation is that it is typically undertaken as a way to increase profits. However, financial innovation can also occur as a response to the need to reduce risk. Tri-party repo is an example of such innovation. While tri-party repo ultimately evolved in ways that created and amplified systemic risk (as we will describe in our next post), its origin was as a solution to inefficiencies and risks associated with the repo settlement arrangements prevailing at the time.

FRBNY— Liberty Street Economics
Financial Innovation: The Origins of the Tri-Party Repo Market

Antoine Martin, vice president in the Federal Reserve Bank of New York’s Research and Statistics Group, and Susan McLaughlin, senior vice president in the Bank’s Markets Group