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Where Collateral Sleeps

Author

Listed:
  • Gary B. Gorton
  • Chase P. Ross
  • Sharon Y. Ross

Abstract

Banks can use the discount window to fend off a run by prepositioning assets with the Fed and borrowing against them. Following the March 2023 bank runs, policymakers have considered mandatory prepositioning, arguably the largest update to the lenderof-last-resort toolkit in over a century. We study the forces that shape the largest banks’ prepositioning. We show that run-prone uninsured-deposit flows causally drive prepositioning and that banks face a prepositioning stigma, even absent borrowing. Prepositioning is no panacea—banks still need good assets to borrow against—but it can help at the margin.

Suggested Citation

  • Gary B. Gorton & Chase P. Ross & Sharon Y. Ross, 2025. "Where Collateral Sleeps," NBER Working Papers 34266, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34266
    Note: ME
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    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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