The Private Production of Safe Assets
68 Pages Posted: 12 Jun 2017 Last revised: 10 Aug 2020
Date Written: August 10, 2020
Using high-frequency, granular panel data on short-term debt securities issued in Europe, we study the existence, empirical boundaries, and fragility of private assets’ safety. We show that only securities with the shortest maturities, issued by banks (certificates of deposit, or CDs), benefit from a safety premium. The supply of such CDs responds positively to excess safety demand. During periods of stress, this relation vanishes for all issuers of private securities, even though their aggregate volumes do not collapse. Other dimensions of heterogeneity, including issuers’ balance sheets or their domicile countries’ fiscal capacity, are less relevant for private safety.
Keywords: Safe assets, Collateral, Short-term debt, Treasuries
JEL Classification: E44, G21
Suggested Citation: Suggested Citation