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Working Paper
Bankruptcy and Delinquency in a Model of Unsecured Debt
Young, Eric R.; Athreya, Kartik B.; Sanchez, Juan M.; Tam, Xuan S. (2016-12-01)
This paper documents and interprets two facts central to the dynamics of informal default or "delinquency" on unsecured consumer debt. First, delinquency does not mean a persistent cessation of payment. In particular, we observe that for individuals 60 to 90 days late on payments, 85% make payments during the next quarter that allow them to avoid entering more severe delinquency. Second, many in delinquency (40%) have smaller debt obligations one quarter later. To understand these facts, we develop a theoretically and institutionally plausible model of debt delinquency and bankruptcy. Our ...
Working Paper , Paper 16-12

Working Paper
Private Equity and Debt Contract Enforcement: Evidence from Covenant Violations
Haque, Sharjil M.; Kleymenova, Anya V. (2023-04-11)
We document the importance of a financial sponsor when a borrower violates a covenant, providing creditors the opportunity to enforce debt contracts. We identify private-equity (PE) sponsored borrowers in the Shared National Credit Program (SNC) data and find PE-sponsored borrowers violate covenants more often than comparable non-PE borrowers. Yet, compared to non-PE, PE-backed borrowers experience smaller reductions in credit commitment upon violation, suggesting lenders are lenient with PE sponsors. Moreover, this leniency is stronger among financially healthier lenders. We show that our ...
Finance and Economics Discussion Series , Paper 2023-018

Working Paper
Credit Ratings, Private Information, and Bank Monitoring Ability
Nakamura, Leonard I.; Roszbach, Kasper (2016-06-16)
In this paper, we use credit rating data from two large Swedish banks to elicit evidence on banks' loan monitoring ability. For these banks, our tests reveal that banks' internal credit ratings indeed include valuable private information from monitoring, as theory suggests. Banks' private information increases with the size of loans.
Working Papers , Paper 16-14

Discussion Paper
Creditor Recovery in Lehman’s Bankruptcy
Sarkar, Asani; Denison, Erin; Fleming, Michael J. (2019-01-14)
Expectations of creditor recovery were low when the Lehman Brothers bankruptcy process started. On the day the firm filed for bankruptcy in September 2008, the average price of Lehman’s senior bonds implied a recovery rate of about 30 percent for senior creditors. A month later the bond price was implying a recovery rate of 9 percent, consistent with results from Lehman’s CDS auction. Two and a half years later, Lehman’s estate estimated that the recovery rate for holding company creditors would be just 16 percent. So, ten years after the filing, how much did creditors actually recover?
Liberty Street Economics , Paper 20190114a

Working Paper
Bankruptcy and delinquency in a model of unsecured debt
Young, Eric R.; Athreya, Kartik B.; Sanchez, Juan M.; Tam, Xuan S. (2012)
This paper documents and interprets two facts central to the dynamics of informal default or ?delinquency? on unsecured consumer debt. First, delinquency does not mean a persistent cessation of payment. In particular, we observe that for individuals 60 to 90 days late on payments, 85% make payments during the next quarter that allow them to avoid entering more severe delinquency. Second, many in delinquency (40%) have smaller debt obligations one quarter later. To understand these facts, we develop a theoretically and institutionally plausible model of debt delinquency and bankruptcy. Our ...
Working Papers , Paper 2012-042

Working Paper
Business Formation: A Tale of Two Recessions
Dunne, Timothy; Penciakova, Veronika; Haltiwanger, John; Dinlersoz, Emin M. (2021-01-29)
The trajectory of new business applications and transitions to employer businesses differ markedly during the Great Recession and the COVID-19 recession. Both applications and transitions to employer startups decreased slowly but persistently in the post-Lehman crisis period of the Great Recession. In contrast, during the COVID-19 recession new applications initially declined but have since sharply rebounded, resulting in a surge in applications during 2020. Projected transitions to employer businesses also rise, but this projection is dampened by a change in the composition of applications ...
FRB Atlanta Working Paper , Paper 2021-5

Report
Accounting for Business Cycles
Chari, V. V.; McGrattan, Ellen R.; Kehoe, Patrick J.; Brinca, Pedro (2016-06-28)
We elaborate on the business cycle accounting method proposed by Chari, Kehoe, and McGrattan (2007), clear up some misconceptions about the method, and then apply it to compare the Great Recession across OECD countries as well as to the recessions of the 1980s in these countries. We have four main findings. First, with the notable exception of the United States, Spain, and Ireland, the Great Recession was driven primarily by the efficiency wedge. Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in ...
Staff Report , Paper 531

Working Paper
Financial benefits, travel costs, and bankruptcy
Scholnick, Barry; Mikhed, Vyacheslav (2014-06-01)
We are the first to show that the cost of personal bankruptcy filers traveling to their bankruptcy trustees affects bankruptcy choices. We use detailed balance sheet, income statement, and location data from 400,000 Canadian bankruptcies. To control for endogenous trustee selection, we use the location of local government offices as an instrument for the location of bankruptcy trustees (while filers interact with trustees, and trustees interact with local government, filers do not interact with the local government). We find that increased travel costs reduce the number of filings. ...
Working Papers , Paper 14-18

Working Paper
Safe Collateral, Arm's-Length Credit : Evidence from the Commercial Real Estate Mortgage Market
Nichols, Joseph B.; Krainer, John; Black, Lamont K. (2017-05)
When collateral is safe, there are less opportunities for things to go wrong. We examine matching between collateral and creditors in the commercial real estate mortgage market by comparing loans in commercial mortgage backed securities (CMBS) conduits and bank portfolios. We model CMBS financing as lower cost but less informed, such that only safe collateral is funded by CMBS. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment. The loans funded by banks that would have been securitized are less likely to default or be renegotiated, indicating ...
Finance and Economics Discussion Series , Paper 2017-056

Working Paper
On the Measurement of Large Financial Firm Resolvability
Jarque, Arantxa; Walter, John R.; Evert, Jackson (2018-03-02)
We say that a large financial institution is "resolvable" if policymakers would allow it to go through unassisted bankruptcy in the event of failure. The choice between bankruptcy or bailout trades off the higher loss imposed on the economy in a potentially disruptive resolution against the incentive for excessive risk-taking created by an assisted resolution or a bailout. The resolution plans ("living wills") of large financial institutions contain information needed to evaluate this trade-off. In this paper, we propose a tool to complement the living will review process: an impact score ...
Working Paper , Paper 18-6

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