The fragility of short-term secured funding markets

Arbeitspapier

This paper develops a model of financial institutions that borrow short term and invest in longterm 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 are endogenous and depend on the borrower's balance sheet, in terms of asset market exposure and leverage, and on fundamentals, such as productivity and size. Moreover, 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.

Objekt anzeigen

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Staff Report ; No. 630

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Markets and the Macroeconomy ; Central Banks and Their Policies ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
• Thema: investment banking ; securities dealers ; repurchase agreements ; runs ; financial fragility ; collateral ; systemic risk

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Martin, Antoine ; Skeie, David ; von Thadden, Ernst-Ludwig
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of New York
• (wo): New York, NY
• (wann): 2013

Weitere Informationen

• Handle: http://hdl.handle.net/10419/93607