IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Risk-Taking and Asset-Side Contagion in an Originate-to-Distribute Banking Model

  • A. Pinna


Registered author(s):

    In a model of originate-to-distribute (OTD) banking, I show that contagion may spread before any preference shock, fire sale, or change in lending margins takes place. The drivers of contagion are opaqueness of collateral and roll-over frequency. Complexity of structured finance and poor screening of noninstitutional borrowers induce both originators and investors at different stages of the OTD chain to develop heterogeneous expectations on the future value of securitized debt. When new information on the value of collateral is sufficiently bad, overleveraged banks are unable to repay loans and the supply of liquidity by lenders in the money market shrinks in the short term. Banks with accurate pricing models are unable to roll over their collateralized loans and go bankrupt for lack of liquidity. Under some conditions the industry is able to prevent contagion to solvent institutions. In the scenario where that is not feasible, policy makers shall limit their intervention to ensuring orderly resolution of insolvent banks’ default.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201019.

    in new window

    Date of creation: 2010
    Date of revision:
    Handle: RePEc:cns:cnscwp:201019
    Contact details of provider: Postal: Via S. Giorgio 12, I-09124 Cagliari
    Phone: +70/6756406
    Fax: +70/6756402
    Web page:

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Rochet, Jean-Charles & Vives, Xavier, 2002. "Coordination failures and the lender of last resort : was Bagehot right after all?," HWWA Discussion Papers 184, Hamburg Institute of International Economics (HWWA).
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:cns:cnscwp:201019. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antonello Pau)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.