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The costs and benefits of moral suasion: Evidence from the rescue of long-term capital management

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  • C. H. Furfine

Abstract

This 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.

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  • C. H. Furfine, 2001. "The costs and benefits of moral suasion: Evidence from the rescue of long-term capital management," BIS Working Papers 103, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:103
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    References listed on IDEAS

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    1. Larry D. Wall, 2010. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta, vol. 95(1).
    2. Dong Lee & Bong-Chan Kho & Rene M. Stulz, 2000. "U.S. Banks, Crises, and Bailouts: From Mexico to LTCM," American Economic Review, American Economic Association, vol. 90(2), pages 28-31, May.
    3. Ellis, David M. & Flannery, Mark J., 1992. "Does the debt market assess large banks, risk? : Time series evidence from money center CDs," Journal of Monetary Economics, Elsevier, vol. 30(3), pages 481-502, December.
    4. Philippe Jorion, 2000. "Risk management lessons from Long‐Term Capital Management," European Financial Management, European Financial Management Association, vol. 6(3), pages 277-300, September.
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    Cited by:

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    3. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "Provocările politicii monetare [Monetary policy challenges]," MPRA Paper 50261, University Library of Munich, Germany, revised 28 Sep 2013.
    4. Bank for International Settlements, 2011. "The impact of sovereign credit risk on bank funding conditions," CGFS Papers, Bank for International Settlements, number 43, december.
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    7. Gert Schnabel, 2002. "Output trends and Okun's law," BIS Working Papers 111, Bank for International Settlements.
    8. the Study group on fixed income markets, 2001. "The changing shape of fixed income markets," BIS Working Papers 104, Bank for International Settlements.

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