01766cas a2200241 a 4500 AALejournalIMF006753 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455208852 1018-5941 BD-DhAAL BD-DhAAL Valderrama, Laura. Macroprudential Regulation Under Repo Funding / Laura Valderrama. Washington, D.C. : International Monetary Fund, 2010. 1 online resource (37 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students The use of collateral has become one of the most widespread risk mitigation techniques. While it brings stabilizing effects to the individual lender we argue that it may exacerbate systemic risk through margin call activation. We show how a liquidity shock to the cash lender may propagate as a solvency shock via liquidity hoarding even if the cash lender remains solvent in all states of nature. Albeit a cost-effective response of the cash lender to a liquidity shock, liquidity hoarding may lead to the bankruptcy of its repo counterparties triggering contagion across asset classes. To buttress the resilience of the financial system, we lay out a menu of macroprudential policies that deactivate this channel of financial contagion. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2010/220 Full text available on IMF http://elibrary.imf.org/view/journals/001/2010/220/001.2010.issue-220-en.xml IMF e-Library