The Role of Banks as Marginal Lenders in the Month-End Repo Market

This paper investigates banks' liquidity provision and pricing behavior as Repo buyers during month-end squeeze periods in the Korean Repo market. Using transaction-level institutional data from 2018 to June 2025, we estimate panel regressions controlling for transaction volumes, counterparty sectors, month-end indicators, and daily fixed effects. We find that while non-bank financial institutions supply funds at lower spreads than domestic banks during regular periods, their funding capacity contracts sharply at month-ends. Conversely, domestic banks substantially expand Repo purchases, confirming their role as critical marginal lenders during liquidity strains. Crucially, although Repo rates rise at month-ends, domestic banks do not exact a disproportionate pricing premium relative to other participants. Our results indicate that month-end rate spikes stem from supply retrenchment among non-bank sectors rather than banks' exercise of market power. These findings underscore the need to refine regulatory frameworks and haircut systems to preserve banks' stabilizing role as liquidity providers under market stress.