bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses …. Encumbering assets allows a bank to raise cheap secured debt and expand profitable investment, but it also concentrates risk on …

We present a model of central bank collateralized lending to study the optimal choice of the haircut policy. We show … agents on the other. We argue that the optimal haircut is higher when the central bank is unable to lend exclusively to … agents who actually need liquidity. Finally, for an unexpected drop in the haircut, the central bank can be more aggressive …