Anonymous Lending, Central Clearing, and Rollover Risk
61 Pages Posted: 14 Dec 2017 Last revised: 27 Aug 2019
Date Written: Janauary 31, 2019
Market design is critical for banks' short term funding. We compare central counterparty (CCP) based markets to over the counter (OTC) markets. While non anonymous OTC markets allocate funds efficiently to borrowers in normal times, anonymity in CCP based markets provides insurance for borrowers, fostering financial stability in a funding crisis. In CCP based markets, borrowers with inefficient technologies can hide among high quality borrowers. In addition to absorbing funding shocks, collateral aligns borrowers' private interests with socially optimally strategies.
Keywords: asymmetric information, resource allocation, financial stability, social welfare
JEL Classification: G01, G14, G21, G28
Suggested Citation: Suggested Citation