Abstract We study repurchase agreement contracting in the Korean market, where the post‐2020 minimum‐margin framework and associated market practice make haircut adjustment relatively constrained. We develop a two‐period model with strategic default, costly information acquisition, and an effective lower bound on haircut adjustment. The model yields three regimes that differ in whether debt remains information insensitive. Haircut rigidity does not eliminate risk; it reallocates risk adjustment toward repo rates, funding quantities, and, when information acquisition is cheap, screening. Extending the model to central clearing, we show that a weaker collateral constraint may be welfare‐improving if a central counterparty reduces effective default exposure through novation, multilateral netting, centralized margining, and default‐management arrangements. This policy implication is conditional on exposure reduction being large relative to implementation and participation costs.
Yu et al. (Thu,) studied this question.