Toni Ahnert is a Principal Researcher in the Financial Stability Department at the Bank of Canada. He is a financial economist with interests in financial intermediation theory and global games. He received his Ph.D. in Economics from the London School of Economics and Political Science and is a member of the Finance Theory Group.
The author traces developments in the Canadian covered bond market. Covered bonds could be a valuable way to provide a stable and diverse source of funding, particularly for smaller banks. However, higher issuance could increase banks’ vulnerability to liquidity stress, with implications for the broader financial system. The author argues that these benefits and challenges can be balanced in a well-designed policy framework.
We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability.
How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses.
We analyze how a wealth shift to emerging countries may lead to instability in developed countries. Investors exposed to expropriation risk are willing to pay a safety premium to invest in countries with good property rights.