Chase Ross Headshot

Chase P. Ross

Financial Economics Ph.D. Candidate
Yale University

chase.ross [at] yale.edu

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Levered Safe Asset Production and the Collateral Premium
(job-market paper)


Banks are vital determinants of the supply of money-like safe assets in an economy: banks produce them by issuing short-term liabilities and pledging collateral. But their ability to create safe assets varies considerably over time as leverage constraints fluctuate. I present a model to describe private safe asset production when intermediaries face leverage constraints. I measure bank leverage constraints using bank-intermediated basis trades and show that the collateral premium — a strategy long Treasuries which are used more often as repo collateral and short Treasuries used less often — has a positive expected return of 65 basis points per annum because the collateral premium loads on bank leverage risk.