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Working Paper
Creditor recovery: the macroeconomic dependence of industry equilibrium
This paper reconciles industry conditions with the state of the economy in driving asset liquidation values and, therefore, recovery rates on defaulted debt securities. Macroeconomic effects matter but they operate differentially at the industry level.
Journal Article
Can banks provide liquidity in a financial crisis?
In financial crises of the recent past, investors often withdrew from securities markets and placed their funds into safer assets, such as U.S. Treasuries and bank deposits. During such episodes, a wide range of businesses shut out of securities markets sought to fund their operations by drawing down credit lines established with banks during normal times. Awash with funds from depositors seeking a safe haven, banks had no difficulty meeting these increased credit demands. Thus, banks helped avoid financial disruptions and business liquidations that would have occurred in the absence of a ...
Working Paper
Are banks passive liquidity backstops? deposit rates and flows during the 2007-2009 crisis
Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The standard argument - that banks can - hinges on deposit inflows that are seeking a safe haven and provide banks with a natural hedge to fund drawn credit lines and other commitments. We shed new light on this issue by studying the behavior of bank deposit rates and inflows during the 2007-09 crisis. Our results indicate that the role of the banking system as a stabilizing liquidity insurer is not one of the passive recipient, but of an active seeker, of deposits. We find that ...
Journal Article
What determines creditor recovery rates?
The 2007-09 financial crisis illustrated the importance of healthy banks for the overall stability of the financial system and economy. Because banking is inherently risky, the health of banks depends on their ability to manage risk and exposure to losses. ; An important component of a strong risk management system is a bank?s ability to assess the potential losses on its investments. One factor that determines the extent of losses is the recovery rate on loans and bonds that are in default. For example, the recovery rate is said to be 50 percent if the creditor is able to recover only half ...
Working Paper
Lender exposure and effort in the syndicated loan market
This paper tests for agency problems between the lead arranger and syndicate participants in the syndicated loan market. One problem comes from adverse selection, whereby the lead arranger has a private informational advantage over participants. A second problem comes from moral hazard, whereby the lead arranger puts less effort in monitoring when it retains a smaller loan portion. Applying an instrumental variables strategy, I find that borrowers' performance is influenced by the lead's share. Dynamic tests extract active contributions made by the lead, supporting a monitoring ...