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Wholesale funding, coordination, and credit risk
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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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Text (Working paper)
WRAP_124.2013_zhang.pdf - Published Version Download (410Kb) | Preview |
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
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) | ||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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| 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: |
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| 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| Status: | Not Peer Reviewed | ||||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 (Creative Commons) | ||||
| Date of first compliant deposit: | 1 August 2016 | ||||
| Date of first compliant Open Access: | 1 August 2016 | ||||
| Funder: | University of Warwick, China. Jiao yu bu [Ministry of Education] |
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