A liquidity-constrained asset owner designs an asset-backed security to raise funds from an informed liquidity supplier. Information insensitive securities reduce the liquidity supplier's informational rents. The issuer optimally screens the liquidity supplier's private information by offering a menu of debt contracts with face values monotonically ordered in the liquidity supplier's valuation. We leverage this characterization to show that when the liquidity supplier's private information becomes...

An asset owner designs an asset-backed security and a signal about its value. After privately observing the signal, he sells the security to a monopolistic liquidity supplier. Any optimal signal distribution guarantees the security sale and reveals noisy information about high valuations of the security. The optimal security is pure equity – the most informationally sensitive security. It is risky debt under external liquidity requirements...

How much information about financial institutions' balance sheets should regulators pass on to the market? To minimize the probability of inefficient default, the regulator optimally designs a disclosure regime that imposes transparency when the firm has weak fundamentals and opacity, otherwise. Intuitively, strategic complementarities among the investors, which are exacerbated by financial constraints, induce a preference for granular disclosures. The optimal policy is robust to...