Collateral Damage / Gary B. Gorton, Toomas Laarits.

By:

Gorton, Gary B

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w24298.Publication details: Cambridge, Mass. National Bureau of Economic Research 2018.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: A financial crisis is an event in which the holders of short-term debt come to question the collateral backing that debt. So, the resiliency of the financial system depends on the quality of that collateral. We show that there is a shortage of high-quality collateral by examining the convenience yield on short-term debt, which summarizes the supply and demand for short-term safe debt, taking into account the availability of high-quality collateral. We then show how the private sector has responded by issuing more (unsecured) commercial paper at shorter maturities. The results suggest that there is a shortage of safe debt now compared to the pre-crisis period, implying that the seeds for a new shadow banking system to grow exist.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w24298 (Browse shelf(Opens below))	Not For Loan

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February 2018.

A financial crisis is an event in which the holders of short-term debt come to question the collateral backing that debt. So, the resiliency of the financial system depends on the quality of that collateral. We show that there is a shortage of high-quality collateral by examining the convenience yield on short-term debt, which summarizes the supply and demand for short-term safe debt, taking into account the availability of high-quality collateral. We then show how the private sector has responded by issuing more (unsecured) commercial paper at shorter maturities. The results suggest that there is a shortage of safe debt now compared to the pre-crisis period, implying that the seeds for a new shadow banking system to grow exist.