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Opaque Assets and Rollover Risk

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  • Toni Ahnert
  • Benjamin Nelson

Abstract

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. The endogenous benefit of opacity is lower fragility when profitability is expected to be high. However, the endogenous cost of opacity is a “partial run,” whereby some investors receive bad private signals about profitability and run, even though the intermediary is solvent. We find that intermediaries choose to be transparent (opaque) when expected profitability is low (high). Intermediaries with less-volatile profitability are also more likely to choose to be opaque.

Suggested Citation

  • Toni Ahnert & Benjamin Nelson, 2016. "Opaque Assets and Rollover Risk," Staff Working Papers 16-17, Bank of Canada.
    • Handle: RePEc:bca:bocawp:16-17
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    Cited by:

    1. Ryuichiro Izumi, 2021. "Opacity: Insurance and Fragility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 146-169, April.

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    Keywords

    Financial Institutions; Financial stability;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services

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