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Discussion Paper
The Dynamics of the U.S. Overnight Triparty Repo Market
The overnight segment of the triparty repurchase agreement (repo) market plays a pivotal role in the normal functioning of the U.S. financial system by acting as an important source of secured short-term funding and supporting the liquidity of key fixed income markets, including U.S. Treasury and agency securities. This over-the-counter market accounts for over $1 trillion in daily transactions and provides a unique venue in which a diverse set of market participants invest their cash as well as obtain short-term funding.
Working Paper
Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications
We study the interaction of information production in loan-backed asset markets and credit allocation in a general equilibrium framework. Originating banks can screen their borrowers, but can inform investors of their asset type only through an error-prone rating technology. The premium paid on highly rated assets emerges as the main determinant of screening effort. Because the rating technology is imperfect, this premium is insufficient to induce the efficient level of screening. However, the fact that banks know their asset quality and produce ratings accordingly helps keep the premium ...
Working Paper
Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications
Our goal is to elucidate the interaction of banks' screening effort and strategic information production in loan-backed asset markets using a general equilibrium framework. Asset quality is unobserved by investors, but banks may purchase error-prone ratings. The premium paid on highly rated assets emerges as the main determinant of banks' screening effort. The fact that rating strategies reflect banks' private information about asset quality helps keep this premium high. Conventional regulatory policies interfere with this decision margin, thereby reducing signaling value of high ratings and ...