Long-term bank lending and the transfer of aggregate risk
Abstract: Long-term debt contracts transfer aggregate risk from borrowing firms to lending banks. When aggregate shocks increase the future default probability of firms, banks are not compensated for the default risk of existing contracts. If banks are highly leveraged, this can lead to financial instability with severe repercussions in the real economy. To study this mechanism quantitatively, we build a macroeconomic model of financial intermediation with long-term defaultable loan contracts and calibrate it to match aggregate firm and bank exposure to business cycle risks. Our model exhibits banking crises that closely resemble observed crisis episodes. We find that such crises do not arise in an economy with short-term debt. Our results on the role of long-term debt completely reverse if financial regulation is implemented to increase banks' risk bearing capacity. The financial sector is then well equipped to take on the aggregate risk, such that long-term lending stabilizes the business
- Location
-
Deutsche Nationalbibliothek Frankfurt am Main
- Extent
-
Online-Ressource, 53 S.
- Language
-
Englisch
- Notes
-
Veröffentlichungsversion
begutachtet
- Bibliographic citation
-
IHS Working Paper ; Bd. 13
- Classification
-
Wirtschaft
- Event
-
Veröffentlichung
- (where)
-
Mannheim
- (who)
-
SSOAR, GESIS – Leibniz-Institut für Sozialwissenschaften e.V.
- (when)
-
2020
- Event
-
Veröffentlichung
- (where)
-
Wien
- (who)
-
Institut für Höhere Studien (IHS), Wien
- (when)
-
2020
- Creator
- Contributor
-
Institut für Höhere Studien (IHS), Wien
- URN
-
urn:nbn:de:0168-ssoar-69042-6
- Rights
-
Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
- Last update
-
25.03.2025, 1:55 PM CET
Data provider
Deutsche Nationalbibliothek. If you have any questions about the object, please contact the data provider.
Associated
- Reiter, Michael
- Zessner-Spitzenberg, Leopold
- Institut für Höhere Studien (IHS), Wien
- SSOAR, GESIS – Leibniz-Institut für Sozialwissenschaften e.V.
Time of origin
- 2020
Other Objects (12)
Long-term bank lending and the transfer of aggregate risk
An analysis of aggregate lending in Japan
Long-Term Programm
Long-term stable compressive elastocaloric cooling system with latent heat transfer
Long-term asset allocation
Long-Term Asset Allocation
Long-term relationship bargaining
Long-Term Market Outlook
Asymmetric Information, Strategic Transfers, and the Design of Long-Term Care Policies
Long-term consequences of short-term fellowships
Short-term decisions under long-term uncertainty
Long-term consequences of short-term fellowships
Long-term bank lending and the transfer of aggregate risk
An analysis of aggregate lending in Japan
Long-Term Programm
Long-term stable compressive elastocaloric cooling system with latent heat transfer
Long-term asset allocation
Long-Term Asset Allocation
Long-term relationship bargaining
Long-Term Market Outlook
Asymmetric Information, Strategic Transfers, and the Design of Long-Term Care Policies
Long-term consequences of short-term fellowships
Short-term decisions under long-term uncertainty
Long-term consequences of short-term fellowships
Long-term bank lending and the transfer of aggregate risk
An analysis of aggregate lending in Japan
Long-Term Programm
Long-term stable compressive elastocaloric cooling system with latent heat transfer
Long-term asset allocation
Long-Term Asset Allocation
Long-term relationship bargaining
Long-Term Market Outlook
Asymmetric Information, Strategic Transfers, and the Design of Long-Term Care Policies
Long-term consequences of short-term fellowships
Short-term decisions under long-term uncertainty