Fighting Crises with Secrecy

Author:

Gorton Gary1,Ordoñez Guillermo2

Affiliation:

1. Yale University, 165 Whitney Avenue, New Haven, CT 06511, and NBER (email: )

2. University of Pennsylvania, 133 South 36th Street, Room 505, Philadelphia, PA 19104, and NBER (email: )

Abstract

How 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)

Publisher

American Economic Association

Subject

General Economics, Econometrics and Finance

Cited by 13 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Liquidity policies with opacity;The Quarterly Review of Economics and Finance;2024-10

2. Bailout Stigma;The Journal of Finance;2024-08-23

3. Can Discount Window Stigma Be Cured? An Experimental Investigation;Staff Reports (Federal Reserve Bank of New York);2024-05

4. Borrowing Stigma and Lender of Last Resort Policies;Journal of Financial and Quantitative Analysis;2023-10-16

5. Information management in times of crisis;Journal of Monetary Economics;2023-05

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