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Revenge of the steamroller: ABCP as a window on risk choices

  • Carlos O. Arteta
  • Mark S. Carey
  • Ricardo Correa
  • Jason Kotter

We empirically examine financial institutions' motivations to take systematic bad-tail risk in the form of sponsorship of credit-arbitrage asset-backed commercial paper vehicles. A run on debt issued by such vehicles played a key role in causing and propagating the liquidity crisis that began in the summer of 2007. We find evidence consistent with important roles for both owner-manager agency problems and government-induced distortions, especially government control or ownership of banks.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1076.

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Date of creation: 2013
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Handle: RePEc:fip:fedgif:1076
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  7. Luis Brandão Brandao Marques & Ricardo Correa & Horacio Sapriza, 2013. "International Evidence on Government Support and Risk Taking in the Banking Sector," IMF Working Papers 13/94, International Monetary Fund.
  8. Krishnamurthy, Arvind & Nagel, Stefan & Orlov, Dmitry, 2012. "Sizing Up Repo," CEPR Discussion Papers 8795, C.E.P.R. Discussion Papers.
    • Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
  9. Harald Hau & Marcel Thum, 2009. "Subprime Crisis and Board (In-)Competence: Private vs. Public Banks in Germany," CESifo Working Paper Series 2640, CESifo Group Munich.
  10. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
  11. Christina E. Bannier & Eberhard Feess & Natalie Packham, 2013. "Competition, Bonuses, and Risk-taking in the Banking Industry," Review of Finance, European Finance Association, vol. 17(2), pages 653-690.
  12. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
  13. Daniel Covitz & Nellie Liang & Gustavo A. Suarez, 2013. "The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market," Journal of Finance, American Finance Association, vol. 68(3), pages 815-848, 06.
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