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The Hidden Costs of Strategic Opacity / Ana Babus, Maryam Farboodi.
- Format:
- Book
- Author/Creator:
- Babus, Ana.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w27471.
- NBER working paper series no. w27471
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We explore a model in which banks strategically hold interconnected and opaque portfolios, despite increasing the likelihood they are subject to financial crises. In our framework, banks choose their degree of exposure to other banks to influence how investors can use their information. In equilibrium banks choose portfolios which are neither fully opaque, nor fully transparent. However, their portfolios are excessively interconnected to obfuscate investor information. Banks can create a degree of opacity that decreases welfare, and makes bank crises more likely. Our model is suggestive about the implications of asset securitization, as well as government bailouts.
- Notes:
- Print version record
- July 2020.
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