Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142170
Authors: 
Ahnert, Toni
Anand, Kartik
Gai, Prasanna
Chapman, James
Year of Publication: 
2016
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 17/2016
Abstract: 
How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt and expand profitable investment, but it also concentrates risk on unsecured debt and thus exacerbates fragility and raises unsecured funding costs. Deposit insurance or wholesale funding guarantees induce excessive encumbrance and fragility. To mitigate such risk shifting, we study prudential regulatory tools, including limits on encumbrance, minimum capital requirements and surcharges for encumbrance.
Subjects: 
asset encumbrance
covered bonds
financial fragility
guarantees
rollover risk
wholesale funding
JEL: 
D82
G01
G21
G28
ISBN: 
978-3-95729-260-5
Document Type: 
Working Paper

Files in This Item:
File
Size
594.08 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.