Fighting Crises with Secrecy

Gary Gorton and Guillermo Ordonez

American Economic Journal: Macroeconomics, 2020, vol. 12, issue 4, 218-45

Abstract: How does central bank lending during a crisis restore confidence? Emergency lending facilities that are opaque (in that names of borrowers are kept secret) raise the perceived average quality of bank assets in the economy, creating an information externality that prevents runs. Stigma (the cost of a bank's participation at the lending facility becoming public) is desirable to implement opacity as an equilibrium outcome, as no bank wants to reveal its participation status. The central bank's key policy instrument for limiting the use of lending facilities while maintaining secrecy is the haircut applied to bank assets used as collateral.

JEL-codes: D83 E52 E58 E63 G01 G21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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DOI: 10.1257/mac.20190169

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