DP12395 The Private Production of Safe Assets

Author(s):	Marcin Kacperczyk, Christophe Perignon, Guillaume Vuillemey
Publication Date:	October 2017
Date Revised:	August 2019
Keyword(s):	information sensitivity, safe assets, safety premium
JEL(s):	E41, E43, E44
Programme Areas:	Financial Economics, Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=12395

How fragile is the production of safe assets by the private sector? We answer this question using high-frequency data on certificates of deposit (CDs) issued in Europe. We show that only short-term CDs benefit from a safety premium. Using two identification strategies, we further show that the issuance of short-term CDs strongly responds to measures of safety demand. During periods of stress, this relation vanishes. However, high-quality issuers are still able to issue safe assets in periods of stress as investors distinguish between high- and low-quality issuers. Therefore, concerns about externalities arising from private safety production may be partially overstated.