The costs and benefits of moral suasion: evidence from the rescue of Long-Term Capital Management
AbstractThis study examines the level of unsecured borrowing done by the firms that would ultimately rescue Long-Term Capital Management in the days leading up to the hedge fund's rescue. Although there is some evidence that these banks borrowed less at the height of the crisis, further examination reveals that this reduction in borrowing was demand-driven and did not result from rationing on the part of the market. This suggests that the market believed that the troubles at LTCM would not have solvency-threatening repercussions for the fund's major creditors. Further, it is shown that large banks that were not involved with the LTCM rescue saw the rates they pay for unsecured funds decline following the hedge fund's resolution. This finding is consistent with an increase in the perceived strength of a too-big-to-fail policy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-02-11.
Date of creation: 2002
Date of revision:
Contact details of provider:
Postal: P.O. Box 834, 230 South LaSalle Street, Chicago, Illinois 60690-0834
Web page: http://www.chicagofed.org/
More information through EDIRC
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Evan Gatev & Til Schuermann & Philip E. Strahan, 2009.
"Managing Bank Liquidity Risk: How Deposit-Loan Synergies Vary with Market Conditions,"
Review of Financial Studies,
Society for Financial Studies, vol. 22(3), pages 995-1020, March.
- Evan Gatev & Til Schuermann & Philip E. Strahan, 2006. "Managing Bank Liquidity Risk: How Deposit-Loan Synergies Vary with Market Conditions," NBER Working Papers 12234, National Bureau of Economic Research, Inc.
- Philip Strahan, 2008. "Liquidity Production in 21st Century Banking," NBER Working Papers 13798, National Bureau of Economic Research, Inc.
- Evan Gatev & Philip Strahan, 2008. "Liquidity Risk and Syndicate Structure," NBER Working Papers 13802, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernie Flores).
If references are entirely missing, you can add them using this form.