Cash Providers: Asset Dissemination over Intermediation Chains

Jean-Edouard Colliard and Gabrielle Demange

PSE Working Papers from HAL

Abstract: Many financial assets are disseminated to final investors via chains of over-the-counter transactions between intermediaries (investors or dealers). We build a model where an agent buying some units of the asset can offer to sell part of them to an OTC partner. Intermediation chains are endogenously formed and impact the asset's market liquidity, its issuance, and who ultimately holds the asset. An increase in the intermediaries' funding liquidity (e.g. a lower haircut on the asset) makes intermediation less necessary but also makes it cheaper to issue the asset, increasing the total volume to be distributed and the number of intermediaries and agents holding the asset. We derive implications on liquidity in OTC markets, the dissemination of ''toxic" assets and the collateral policy of central banks and CCPs.

Keywords: OTC markets; Collateral; Intermediation chains; Shadow banking (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Cash Providers: Asset Dissemination over Intermediation Chains (2015)
Working Paper: Cash Providers: Asset Dissemination over Intermediation Chains (2014)
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