We examine how the repo market operates during liquidity stress by applying network analysis to novel transaction-level data of the overnight gilt repo market including the COVID-19 crisis. We find that during this crisis the repo network becomes more connected, with most institutions relying on previously used counterparties. There are however important changes in the repo volumes and spreads during the stress relative to normal times. There is a significant increase in volumes traded with the central counterparties (CCPs) sector. At the same time non-banks, except hedge funds, decrease borrowing and face higher spreads in the bilateral segment. Overall, this evidence reflects a preference for dealers and banks to transact in the centrally cleared rather than the bilateral segment. Our results can inform the policy debate around the behaviour of banks and non-banks in recent liquidity stress and on widening participation in CCPs by non-banks.

We consider the problem of assessing and mitigating fire sales risk for banks under partial information. Using data from the European Banking Authority's stress tests, we consider the matrix of asset holdings of different banks. We first analyse fire sales risk under both full and partial information using different matrix reconstruction methods. We then investigate how well some policy interventions aimed at mitigating fire sales risk perform if they are applied based on only partial information. We find that even under partial information, using suitable network reconstruction methods to decide on policy interventions can significantly mitigate risk from fire sales. Furthermore, we show that some interventions based on reconstructed networks significantly outperform ad hoc methods that decide on interventions only based on the size of an institution and do not account for overlapping portfolios.