Do global banks spread global imbalances?
Subtitle: the case of asset-backed commercial paper during the financial crisis of 2007-09
By: Viral V. Acharya, Philipp Schnabl
Contributors: Schnabl, Philip; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16079; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16079.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The global imbalance explanation of the financial crisis of 2007-09 suggests that demand for riskless assets from countries with current account surpluses created fragility in countries with current account deficits, most notably, in the United States.  We examine this explanation by analyzing the geography of asset-backed commercial paper (ABCP) conduits set up by large commercial banks.  We show that both banks located in surplus countries and banks located in deficit countries manufactured riskless assets of $1.2 trillion by selling short-term ABCP to risk-averse investors, predominantly U.S.  money market funds, and investing the proceeds primarily in long-term U.S.  assets.  As negative information about U.S.  assets became apparent in August 2007, banks in both surplus and deficit countries experienced difficulties in rolling over ABCP and as a result suffered significant losses.  We conclude that global banking flows, rather than global imbalances, determined the geography of the financial crisis"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/24/2010.

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