Mobile Collateral versus Immobile Collateral

Gary Gorton, Toomas Laarits and Tyler Muir

Journal of Money, Credit and Banking, 2022, vol. 54, issue 6, 1673-1703

Abstract: The financial architecture prior to the recent financial crisis was a system of mobile collateral. Safe debt, whether government bonds or privately produced bonds, that is, asset‐backed securities, could be traded, posted as collateral, and rehypothecated, moving to their highest value use. Since the financial crisis, regulatory changes to the financial architecture have aimed to make collateral immobile, most notably with the BIS liquidity coverage ratio (LCR) for banks that requires that (net) short‐term (uninsured) bank debt (e.g., repo) be backed one‐for‐one with high‐quality bonds. We evaluate this immobile capital system with reference to a previous structurally identical regime that also required that short‐term bank debt be backed by Treasury debt one‐for‐one: the U.S. National Banking Era. The experience of the U.S. National Banking Era suggests that the LCR is unlikely to reduce financial fragility and may increase it.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/jmcb.12917

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:54:y:2022:i:6:p:1673-1703

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().