How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt...

Recent experience with financial crises has led to scepticism about the efficacy of crisis management measures that target short-term debt, such as the voluntary/concerted rollovers of interbank lines. Such measures, it is suggested, heighten financial fragility by encouraging creditors to...