Zhang, Lei, Zhang , Lin and Zheng, Yong (2013) Wholesale funding, coordination, and credit risk. Working Paper. Coventry, UK: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2013 (Number 124).

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Abstract

We use the global games approach to study key factors affecting the credit risk
associated with roll-over of bank debt. When creditors are heterogenous, these include
the extent of short-term borrowing and capital market liquidity for repo financing.
Specifically, in a model with a large institutional creditor and a continuum of small
creditors independently making their roll-over decisions based on private information,
we find that increasing the proportion of short-term debt and/or decreasing market
liquidity reduces the willingness of creditors to roll over. This raises credit risk in equilibrium.
The presence of a large creditor does not always reduce credit risk, however,
unless it is better informed.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Banks and banking, Debt, Credit, Risk, Economics -- Mathematical models
Series Name:	CAGE Online Working Paper Series
Publisher:	Department of Economics, University of Warwick
Place of Publication:	Coventry, UK
Official Date:	2013
Dates:	Date Event 2013 Published
Volume:	Volume 2013
Number:	Number 124
Number of Pages:	32
Institution:	University of Warwick
Status:	Not Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Open Access
Funder:	University of Warwick, China. Jiao yu bu [Ministry of Education]

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