Bank of Canada: central banks prefer higher haircuts
A Bank of Canada paper published in October shows central banks' optimal haircuts are higher when they are unable to lend exclusively to agents who need liquidity.
James Chapman, Jonathan Chiu, and Miguel Molico, the paper's authors, argue that because central banks' objective when setting haircuts on collateralised assets during periods of illiquidity is motivated by market functioning rather than profits, the typical risk-management approach to setting haircuts is not optimal.
Central banks
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