The Maturity Rat Race / Markus K. Brunnermeier, Martin Oehmke.

By:

Brunnermeier, Markus K

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16607.Publication details: Cambridge, Mass. National Bureau of Economic Research 2010.Description: 1 online resource: illustrations (black and white)Subject(s):

G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages
G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: We develop a model of endogenous maturity structure for financial institutions that borrow from multiple creditors. We show that a maturity rat race can occur: an individual creditor can have an incentive to shorten the maturity of his own loan to the institution, allowing him to adjust his financing terms or pull out before other creditors can. This, in turn, causes all other lenders to shorten their maturity as well, leading to excessively short-term financing. This rat race occurs when interim information is mostly about the probability of default rather than the recovery in default, and is most pronounced during volatile periods and crises. Overall, firms are exposed to unnecessary rollover risk.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w16607 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w16604 Car Notches: Strategic Automaker Responses to Fuel Economy Policy /	nber w16605 Determinants of Financial Stress and Recovery during the Great Recession /	nber w16606 The Economic Value of Higher Teacher Quality /	nber w16607 The Maturity Rat Race /	nber w16608 The Behavioral Response to Voluntary Provision of an Environmental Public Good: Evidence from Residential Electricity Demand /	nber w16609 Over The Cliff: From the Subprime to the Global Financial Crisis /	nber w1661 The Physical State of the British Working Class, 1870-1914: Evidence from Army Recruits /	Next

December 2010.

We develop a model of endogenous maturity structure for financial institutions that borrow from multiple creditors. We show that a maturity rat race can occur: an individual creditor can have an incentive to shorten the maturity of his own loan to the institution, allowing him to adjust his financing terms or pull out before other creditors can. This, in turn, causes all other lenders to shorten their maturity as well, leading to excessively short-term financing. This rat race occurs when interim information is mostly about the probability of default rather than the recovery in default, and is most pronounced during volatile periods and crises. Overall, firms are exposed to unnecessary rollover risk.