Repo runs


Martin, Antoine ; Skeie, David ; Thadden, Ernst-Ludwig von



URL: https://ideas.repec.org/p/tiu/tiucen/e14f6c26-c077...
Document Type: Working paper
Year of publication: 2010
The title of a journal, publication series: Discussion Paper / Center for Economic Research, Tilburg University
Volume: 2010-44S
Place of publication: Tilburg
Publishing house: CentER
ISSN: 0924-7815
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomische Theorie (von Thadden)
Subject: 330 Economics
Abstract: This paper develops a model of financial institutions that borrow short- term and invest into long-term marketable assets. Because these financial intermediaries perform maturity transformation, they are subject to runs. We endogenize the profits of the intermediary and derive distinct liquidity and solvency conditions that determine whether a run can be prevented. We first characterize these conditions for an isolated intermediary and then generalize them to the case where the intermediary can sell assets to prevent runs. The sale of assets can eliminate runs if the intermediary is solvent but illiquid. However, because of cash-in-the-market pricing, this becomes less likely the more intermediaries are facing problems. In the limit, in case of a general market run, no intermediary can sell assets to forestall a run, and our original solvency and liquidity constraints are again relevant for the stability of financial institutions.

Dieser Eintrag ist Teil der Universitätsbibliographie.




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Martin, Antoine ; Skeie, David ; Thadden, Ernst-Ludwig von (2010) Repo runs. Discussion Paper / Center for Economic Research, Tilburg University Tilburg 2010-44S [Working paper]


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