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Fighting Crises with Secrecy†

Fighting Crises with Secrecy† AbstractHow does central bank lending during a crisis restore confidence? Emergency lending facilities that are opaque (in that names of borrowers are kept secret) raise the perceived average quality of bank assets in the economy, creating an information externality that prevents runs. Stigma (the cost of a bank’s participation at the lending facility becoming public) is desirable to implement opacity as an equilibrium outcome, as no bank wants to reveal its participation status. The central bank’s key policy instrument for limiting the use of lending facilities while maintaining secrecy is the haircut applied to bank assets used as collateral. (JEL D83, E52, E58, E63, G01, G21) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal Macroeconomics American Economic Association

Fighting Crises with Secrecy†

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Publisher
American Economic Association
Copyright
Copyright © 2020 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20190169
Publisher site
See Article on Publisher Site

Abstract

AbstractHow does central bank lending during a crisis restore confidence? Emergency lending facilities that are opaque (in that names of borrowers are kept secret) raise the perceived average quality of bank assets in the economy, creating an information externality that prevents runs. Stigma (the cost of a bank’s participation at the lending facility becoming public) is desirable to implement opacity as an equilibrium outcome, as no bank wants to reveal its participation status. The central bank’s key policy instrument for limiting the use of lending facilities while maintaining secrecy is the haircut applied to bank assets used as collateral. (JEL D83, E52, E58, E63, G01, G21)

Journal

American Economic Journal Macroeconomics – American Economic Association

Published: Oct 1, 2020

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