NBER paper explores drivers of collateral prepositioning
Authors ask why US banks choose not to pledge all their available collateral at the Fed
New research explores why US banks choose to pledge some, but not all, of their available collateral at the Federal Reserve.
The “largest, most sophisticated” banks pledge 28% of their unencumbered collateral at the Fed, authors Gary Gorton, Chase Ross and Sharon Ross find. Prepositioning assets allows the US central bank to value them for quick use as collateral in the discount window during a crisis.
“At face value, it is surprising that banks have quietly pledged so much of their assets to the
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