Where Collateral Sleeps

Gary Gorton, Chase Ross and Sharon Y. Ross

No 34266, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Banks can use the discount window to fend off a run by prepositioning assets with the Fed and borrowing against them. Following the March 2023 bank runs, policymakers have considered mandatory prepositioning, arguably the largest update to the lenderof-last-resort toolkit in over a century. We study the forces that shape the largest banks’ prepositioning. We show that run-prone uninsured-deposit flows causally drive prepositioning and that banks face a prepositioning stigma, even absent borrowing. Prepositioning is no panacea—banks still need good assets to borrow against—but it can help at the margin.

JEL-codes: E02 G20 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-ifn and nep-mon
Note: ME
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