Collateral Damage / Gary B. Gorton, Toomas Laarits.

Format:

Book

Author/Creator:

Gorton, Gary B.

Contributor:

National Bureau of Economic Research.

Laarits, Toomas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24298.

NBER working paper series no. w24298

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

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.

Notes:

Print version record

February 2018.