The fragility of short-term secured funding markets

• 成果类型: Article
• 署名作者: Martin, Antoine; Skeie, David; von Thadden, Ernst-Ludwig
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - New York; University of Mannheim
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2013.10.006
• 发表日期: 2014
• 页码: 15-42
• 关键词: Investment banking; Repurchase agreements; runs; financial fragility; collateral; Systemic risk

摘要

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. (C) 2013 Elsevier Inc. All rights reserved.