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Harry McVea

This chapter sets out to explore the role of hedge funds in the context of sale and repurchase agreements (so-called ‘repos’) – an important and increasingly high-profile facet of the shadow banking universe. In this respect, the focus is on bilateral repos – that is, repo transactions which are negotiated and settled directly between two counterparties without the use of a ‘triparty agent’. Hedge funds are major players in such repos and these markets are widely regarded as being opaque. More pertinently, the chapter seeks to critically analyse the ways in which, within the context of repo transactions, hedge funds may trigger and, in turn, transmit ‘systemic risk’ by way of a so-called ‘repo run’ – either within the shadow banking system itself, or, in ways which adversely affect, directly or indirectly, the traditional banking sector.