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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. 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.
    2. 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.
    3. Larry D. Wall, 2010. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta, vol. 95(1).
    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:

    1. Gabriele Galati & Corrinne Ho, 2001. "Macroeconomic news and the euro/dollar exchange rate," BIS Working Papers 105, Bank for International Settlements.
    2. Schnabel, Isabel & Shin, Hyun Song, 2001. "Foreshadowing LTCM: The Crisis of 1763," Sonderforschungsbereich 504 Publications 02-46, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    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.
    5. Serge Jeanneau & Marian Micu, 2002. "Determinants of international bank lending to emerging market countries," BIS Working Papers 112, Bank for International Settlements.
    6. Mark Anthony Johnson & Abdullah Mamun, 2012. "The failure of Lehman Brothers and its impact on other financial institutions," Applied Financial Economics, Taylor & Francis Journals, vol. 22(5), pages 375-385, March.
    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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