Arbeitspapier

Asset encumbrance, bank funding and financial fragility

How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt and expand profitable investment, but it also concentrates risk on unsecured debt and thus exacerbates fragility and raises unsecured funding costs. Deposit insurance or wholesale funding guarantees induce excessive encumbrance and fragility. To mitigate such risk shifting, we study prudential regulatory tools, including limits on encumbrance, minimum capital requirements and surcharges for encumbrance.

Language
Englisch

Bibliographic citation
Series: Bank of Canada Staff Working Paper ; No. 2016-16

Classification
Wirtschaft
Asymmetric and Private Information; Mechanism Design
Financial Crises
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Subject
Financial institutions
Financial stability
Financial system
regulation and policies

Event
Geistige Schöpfung
(who)
Ahnert, Toni
Anand, Kartik
Gai, Prasanna S.
Chapman, James
Event
Veröffentlichung
(who)
Bank of Canada
(where)
Ottawa
(when)
2016

DOI
doi:10.34989/swp-2016-16
Handle
Last update
20.09.2024, 8:22 AM CEST

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Ahnert, Toni
  • Anand, Kartik
  • Gai, Prasanna S.
  • Chapman, James
  • Bank of Canada

Time of origin

  • 2016

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