Optimal Interventions on Strategic Fails in Repo Markets

A search theoretic model of repurchase agreements is constructed wherein the sellers' incentives to fail deliver securities are explicitly incorporated. In equilibrium, too many sellers choose relative social optimum. Two types interventions studied: a fails charge and an interest reset. These improve efficiency by lowering fraction who making it easier for buyers find their counterparties. extensions model, two optimal differently affected fundamental variables. Thus, policymaker needs carefully distinguish between workings two.