The fragility of short-term secured funding markets

Antoine Martin, David Skeie and Ernst-Ludwig von Thadden

No 630, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper develops a model of financial institutions that borrow short term and invest in long-term assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct liquidity, collateral, and asset liquidation constraints, which determine whether a run can occur as a result of changing market expectations. We show that the extent to which borrowers can ward off an individual run depends on whether it has sufficient liquidity, collateral, and asset liquidation capacity. These determinants are endogenous and depend on the borrower's balance sheet, in terms of asset market exposure and leverage, and on fundamentals, such as productivity and size. Moreover, systemic runs are possible if shocks to the valuation of collateral held by outside investors are sufficiently strong and uniform, and if the system as a whole is exposed to high short-term funding risk.

Keywords: systemic risk; investment banking; securities dealers; runs; repurchase agreements; financial fragility; collateral (search for similar items in EconPapers)
JEL-codes: E44 E58 G24 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2013
New Economics Papers: this item is included in nep-ban
Note: For a published version of this report, see Antoine Martin, David Skeie, and Ernst-Ludwig von Thadden, "The Fragility of Short-Term Secured Funding Markets," Journal of Economic Theory 149 (January 2014): 15-42.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr630.pdf (application/pdf)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr630.html (text/html)

Related works:
Journal Article: The fragility of short-term secured funding markets (2014)
Working Paper: The Fragility of Short-Term Secured Funding Markets (2013)
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:fip:fednsr:630

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().