Brown Bag Seminar with Alireza Tahbaz-Salehi, Columbia University
FRIC Center for Financial Frictions and the Department of Finance are pleased to announce the upcoming Brown Bag Seminar with Alireza Tahbaz-Salehi, Columbia University.
Alireza Tahbaz-Salehi will present
Collateral Shortages and Intermediation Networks
This paper argues that in the presence of trading frictions and agency problems, the interbank market may be overly fragile, in the sense that small changes in the liquidity of assets used as collateral may lead to large swings in haircuts and a potential credit freeze. Our results highlight that the financial system’s intermediation capacity crucially depends on the distribution of collateralizable assets among financial institution as opposed to their aggregate amount. We also show that the interplay of agency problems and trade frictions may result in the endogenous emergence of intermediation bottlenecks that impair credit relationships.