Ignorance Is Bliss? Anonymous Lending with Roll over Risk

Tobias Dieler and Loriano Mancini
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Tobias Dieler: University of Bristol
Loriano Mancini: University of Lugano and Swiss Finance Institute

No 18-06, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We provide a model of banks' short-term funding and study the conditions influencing roll over risk. Our model reproduces the major differences between U.S. and Euro short-term funding markets. Anonymous, short-term markets are resilient against larger liquidity shocks. Non- anonymous markets however improve welfare by allocating resources efficiently. An anonymous Central Counterparty (CCP) is therefore welfare improving in a liquidity crisis but detrimental to welfare in normal times. The insurance mechanism on the CCP, which transfers wealth from high to low quality borrowers, always increases the market's resilience against a liquidity shock.

Keywords: lending; roll-over risk; asymmetric information; social welfare (search for similar items in EconPapers)
JEL-codes: G01 G14 G21 G28 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2018-03
New Economics Papers: this item is included in nep-ban
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1806

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