Margins, debt capacity, and systemic risk
Sirio Aramonte,
Andreas Schrimpf and
Hyun Song Shin
No 1121, BIS Working Papers from Bank for International Settlements
Abstract:
Debt capacity depends on margins. When set in a financial system context with collateralized borrowing, two additional features emerge. The first is the recursive property of leverage whereby higher leverage by one player begets higher leverage overall, reflecting the nature of debt as collateral for others. The second feature is that the "dash for cash" is the mirror image of deleveraging. In any setting where market participants engage in margin budgeting, a generalized increase in margins entails a shift of the overall portfolio away from riskier to safer assets. These findings have important implications for the design of non-bank financial intermediary (NBFI) regulations and of central bank backstops.
Keywords: financial intermediation; non-banks; market-based finance; market liquidity; systemic risk (search for similar items in EconPapers)
JEL-codes: G22 G23 G28 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-fmk, nep-ger and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://www.bis.org/publ/work1121.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1121.htm (text/html)
Related works:
Working Paper: Margins, debt capacity, and systemic risk (2023) 
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:bis:biswps:1121
Access Statistics for this paper
More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().