Bank Size, Collateral, and Net Purchase Behavior in the Federal Funds Market: Empirical Evidence

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Abstract
Differences between large and small banks' net purchase behavior in the (uncollaterized) federal funds (FF) and (collateralized) repurchase agreements (repo) markets are documented. The larger a bank's asset size, the larger, ceteris paribus, its FF purchases. The threshold-asset size is in the region of $1 billion to $2.5 billion. For any size class, banks located in major banking centers are more likely to be net FF purchasers than are banks located outside money centers. In the collateralized repo market, there appears to be no size or locational discrimination--indeed, the smallest banks are the largest net purchasers (as a fraction of assets) of funds on the repo market.

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