The fragility of short-term secured funding markets


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



DOI: https://doi.org/10.5282/ubm/epub.17415
URL: https://epub.ub.uni-muenchen.de/17415/1/449.pdf
Additional URL: https://ideas.repec.org/p/trf/wpaper/449.html
Document Type: Working paper
Year of publication: 2013
The title of a journal, publication series: SFB/TR 15 Discussion Paper Series
Volume: 449
Place of publication: Mannheim [u.a.]
Publishing house: Sonderforschungsbereich/Transregio 15
Edition: Rev. 2014
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomische Theorie (von Thadden)
Subject: 330 Economics
Abstract: This paper develops an infinite-horizon model of financial institutions that borrow short-term and invest in long-term assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct liquidity, collateral, and asset liquidation constraints, which determine whether a run can occur as a result of changing market expectations. We show that the extent to which borrowers can ward off an individual run depends on whether it has sufficient liquidity, collateral, and asset liquidation capacity. These determinants depend on the borrower’s (endogenous) balance sheet and on (exogenous) fundamentals. Systemic runs are possible if shocks to the valuation of collateral held by outside investors are sufficiently strong and uniform, and if the system as a whole is exposed to high short-term funding risk. The theory has policy implications for prudential regulation and lender-of-last-resort interventions.

Dieser Eintrag ist Teil der Universitätsbibliographie.




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Martin, Antoine ; Skeie, David ; Thadden, Ernst-Ludwig von (2013) The fragility of short-term secured funding markets. SFB/TR 15 Discussion Paper Series Mannheim [u.a.] 449 [Working paper]


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