Banks, debt maturity and financial crises

Roberto Chang, Andrés Velasco

Research output: Contribution to journalArticle

59 Scopus citations

Abstract

We develop a model in which the maturity of external debt of banks, their level of international reserves, and the term structure of interest rates are jointly determined. Self-fulfilling runs may occur, and banks take this possibility into account when choosing the structure of their assets and liabilities. If the probability of a run is sufficiently small, banks will deliberately choose an illiquid asset-liability position and expose themselves to a run. In that case, short term debt will be cheaper than long term debt, and the maturity structure of foreign debt will depend on attitudes towards risk. (C) 2000 Elsevier Science B.V. All rights reserved.

Original languageEnglish (US)
Pages (from-to)169-194
Number of pages26
JournalJournal of International Economics
Volume51
Issue number1
DOIs
StatePublished - Jun 2000
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Bank runs
  • Financial crises
  • Foreign debt

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