Toni Ahnert is a Principal Researcher in the Financial Stability Department at the Bank of Canada. He is a financial economist with interests in banking, economic theory, and international finance. He received his Ph.D. in Economics from the London School of Economics and Political Science.
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.