Active wholesale financial markets help reallocate deposits across heterogeneous banks. Because of incentive problems, these flows are constrained and collateral is needed. Both the volume, the value, and the composition of collateral matter. We make a distinction between "outside collateral"...

Active wholesale financial markets help reallocate deposits across heterogeneous banks. Because of incentive problems these flows are constrained and collateral is needed. The composition of collateral matters. The use of inside assets (loans) creates a “collateral pyramid” in that cash...

Active wholesale financial markets help reallocate deposits across heterogeneous banks. Because of incentive problems these flows are constrained and collateral is needed. The composition of collateral matters. The use of inside assets (loans) creates a "collateral pyramid" in that cash flows...

This paper studies the fragility of interbank markets. Due to moral hazard and asymmetric information problems, collateral along with borrowing constraints are needed to provide appropriate incentives for banks. A key element of the analysis is the distinction between collateral based upon...