Perotti, Enrico C.; Matta, Rafael - 2015 - This Draft: March 16, 2015
Does demand for safety create instability ? Secured (repo) funding can be made so safe that it never runs, but shifts … fundamental risk. This effect is separate from the liquidation externality caused by fire sales of seized collateral upon default …. While secured funding combined with high yield unsecured debt may reduce instability, the private choice of repo funding …
