Self-Fulfilling Fire Sales: Fragility of Collateralized Short-Term Debt Markets

• 成果类型: Article
• 署名作者: Kuong, John Chi-Fong
• 署名单位: INSEAD Business School
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa115
• 发表日期: 2021
• 页码: 2910
• 关键词: Moral hazard; COUNTERPARTY RISK; interest-rates; liquidity; equilibria; REPURCHASE; banking

摘要

This paper shows that collateralized short-term debt, although privately optimal for reducing borrowers' risk-taking incentives, can induce fragility (multiple equilibria). Despite sequential-service property being absent in collateralized debt, such as repurchase agreements, a systemic run can arise, featuring large increases in default risks, fire-sale discounts of collateral, cost of credit, and amount of credit rationing. Asset price guarantees, leverage caps, and central clearing promote stability and welfare. Using global games techniques, I show that a systemic run is more likely in bad times, and a large enough asset price guarantee reduces run risks.