Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79593
Authors: 
Anand, Kartik
Chapman, James
Gai, Prasanna
Year of Publication: 
2012
Series/Report no.: 
SFB 649 Discussion Paper 2012-065
Abstract: 
We examine the financial stability implications of covered bonds. Banks issue covered bonds by encumbering assets on their balance sheet and placing them within a dynamic ring fence. As more assets are encumbered, jittery unsecured creditors may run, leading to a banking crisis. We provide conditions for such a crisis to occur. We examine how different over-the-counter market network structures influence the liquidity of secured funding markets and crisis dynamics. We draw on the framework to consider several policy measures aimed at mitigating systemic risk, including caps on asset encumbrance, global legal entity identifiers, and swaps of good for bad collateral by central banks.
Subjects: 
covered bonds
over-the-counter markets
systemic risk
asset encumbrance
legal entity identifiers
velocity of collateral
JEL: 
G01
G18
G21
Document Type: 
Working Paper

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