Over-the-counter loans, adverse selection, and stigma in the interbank market

Ennis, Huberto M.; Weinberg, John A.

doi:10.1016/j.red.2012.09.005

Cited by 92 publications

(71 citation statements)

References 24 publications

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“…Ennis and Weinberg (2013) consider a model where discount window activity is observed only with some probability.…”

Section: The Discount Window Policymentioning

confidence: 99%

“…Ennis and Weinberg (2013) and La'O (2014) are two papers aimed at developing models to improve understanding of the mechanisms behind discount window stigma. More recently, Gauthier et al (2015), Li, Milne, and Qiu (2016), and Gorton and Ordoñez (2016) also discuss models where discount window stigma plays a role.…”

Section: Introductionmentioning

confidence: 99%

“…The paper has also taken a prominent place in the literature on discount window stigma, where it is often cited, along with Ennis and Weinberg (2013), as representing the available formal explanation for the phenomenon (see, for example, Armantier et al (2015, p. 318)). Since the framework proposed by Philippon and Skreta (2012) can potentially provide important insights, it seems worth pursuing a better understanding of the mechanisms that give rise to stigma in the model and that are not fully discussed in the original paper.…”

Section: Introductionmentioning

confidence: 99%

“…On the theoretical side, the work by Ennis and Weinberg (2013) focuses on the issue of stigma at the discount window and is aimed at identifying specific features of an economic environment where stigma, as is often described, can actually occur in equilibrium. As in Philippon and Skreta (2012), adverse selection plays a critical role in the paper by Ennis and Weinberg (2013).…”

Section: Introductionmentioning

confidence: 99%

“…As in Philippon and Skreta (2012), adverse selection plays a critical role in the paper by Ennis and Weinberg (2013). However, both the models and the mechanisms that give rise to stigma are quite different in the two papers.…”

Section: Introductionmentioning

confidence: 99%

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Interventions in Markets with Adverse Selection: Implications for Discount Window Stigma

Ennis¹

2017

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I study the implications for central bank discount window stigma of the model by Philippon and Skreta (2012). I take an equilibrium perspective for a given discount window program instead of following the program-design approach of the original paper. This allows me to narrow the focus on the model's positive predictions. In the model, firms (banks) need to borrow to finance a productive project. There is limited liability and firms have private information about their ability to repay their debts. This creates an adverse selection problem. The central bank can ameliorate the impact of adverse selection by lending to firms. Discount window borrowing is observable and it may be taken as a signal of firms' credit worthiness. Under some conditions, firms borrowing from the discount window may pay higher interest rates to borrow in the market, a phenomenon often associated with the presence of stigma. I discuss these and other outcomes in detail and what they suggest about the relevance of stigma as an empirical phenomenon.JEL classification: E51, E58, G21, G28

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“…Ennis and Weinberg (2013) consider a model where discount window activity is observed only with some probability.…”

Section: The Discount Window Policymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Interventions in Markets with Adverse Selection: Implications for Discount Window Stigma

Ennis¹

2017

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The effect of the central bank’s standing facilities on interbank lending and bank liquidity holding

Näther

2018

Econ Theory

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How does the central bank influence interbank lending? The central bank's policy rates determine the attractiveness of the standing facilities compared with the interbank market. Therefore, by choosing the policy rates the central bank affects the number of banks using the standing facilities and the number of banks using the interbank market. There is also a second channel. The policy rates may influence bank liquidity holding and thus the chances that interbank lending occurs. To address both channels, bank liquidity holding is endogenous in the presented model. The results show that liquidity is not held to insure against idiosyncratic risk but to lend to the interbank market in case counterparty risk is not too high. If banks expect interbank lending to be sufficiently likely and profitable, a smooth liquidity transfer at the interbank market is guaranteed. The central bank can create such a situation under the constraint that counterparty risk is moderate and counterparty risk perceptions are not too distorted. If, however, counterparty risk is perceived to be too large, this may result in liquidity hoarding. KeywordsInterbank market • Liquidity holding • Standing facilities JEL Classification E43 • E58 • G21 The author would like to thank an anonymous referee, Diemo Dietrich, Uwe Vollmer, Harald Wiese, and the participants of the 8th RGS Doctoral Conference in Economics, the Doctoral Seminars at IWH and Leipzig University, and the Annual Congress 2015 of the Swiss Society of Economics and Statistics for helpful comments and suggestions, while retaining responsibility for all errors..

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The LOLR Policy and its Signaling Effect in a Time of Crisis

Milne

Qiu

2019

J Financ Serv Res

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Over-the-counter loans, adverse selection, and stigma in the interbank market

Cited by 92 publications

References 24 publications

Interventions in Markets with Adverse Selection: Implications for Discount Window Stigma

Interventions in Markets with Adverse Selection: Implications for Discount Window Stigma

The effect of the central bank’s standing facilities on interbank lending and bank liquidity holding

The LOLR Policy and its Signaling Effect in a Time of Crisis

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