Opaque Assets and Rollover Risk

Toni Ahnert and Benjamin Nelson

Staff Working Papers from Bank of Canada

Abstract: We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability. The endogenous benefit of opacity is lower fragility when profitability is expected to be high. However, the endogenous cost of opacity is a “partial run,” whereby some investors receive bad private signals about profitability and run, even though the intermediary is solvent. We find that intermediaries choose to be transparent (opaque) when expected profitability is low (high). Intermediaries with less-volatile profitability are also more likely to choose to be opaque.

Keywords: Financial Institutions; Financial stability (search for similar items in EconPapers)
JEL-codes: G01 G2 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2016
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-17

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