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Fighting Crises with Secrecy

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Listed:
  • Gary Gorton
  • Guillermo Ordoñez

Abstract

How does central bank lending during a crisis restore confidence? Emergency lending facilities that are opaque (in that names of borrowers are kept secret) raise the perceived average quality of bank assets in the economy, creating an information externality that prevents runs. Stigma (the cost of a bank's participation at the lending facility becoming public) is desirable to implement opacity as an equilibrium outcome, as no bank wants to reveal its participation status. The central bank's key policy instrument for limiting the use of lending facilities while maintaining secrecy is the haircut applied to bank assets used as collateral.

Suggested Citation

  • Gary Gorton & Guillermo Ordoñez, 2020. "Fighting Crises with Secrecy," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(4), pages 218-245, October.
    • Handle: RePEc:aea:aejmac:v:12:y:2020:i:4:p:218-45
    DOI: 10.1257/mac.20190169
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    Cited by:

    1. Olivier Armantier & Charles Holt, 2024. "Can Discount Window Stigma Be Cured? An Experimental Investigation," Staff Reports 1103, Federal Reserve Bank of New York.
    2. Anderson, Haelim & Copeland, Adam, 2023. "Information management in times of crisis," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 35-49.
    3. Alvarez, Fernando & Barlevy, Gadi, 2021. "Mandatory disclosure and financial contagion," Journal of Economic Theory, Elsevier, vol. 194(C).
    4. Gorton, Gary & Ordoñez, Guillermo, 2022. "The supply and demand for safe assets," Journal of Monetary Economics, Elsevier, vol. 125(C), pages 132-147.
    5. Olivier Armantier & Marco Cipriani & Asani Sarkar, 2025. "Discount Window Stigma After the Global Financial Crisis," Liberty Street Economics 20250117, Federal Reserve Bank of New York.
    6. Enrico Perotti & Magdalena Rola-Janicka, 2022. "The Good, the Bad, and the Missed Boom," The Review of Financial Studies, Society for Financial Studies, vol. 35(11), pages 5025-5056.
    7. Olivier Armantier & Marco Cipriani & Asani Sarkar, 2024. "Discount Window Stigma After the Global Financial Crisis," Staff Reports 1137, Federal Reserve Bank of New York.

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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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