The maturity rat race
By: Markus K. Brunnermeier, Martin Oehmke
Contributors: Oehmke, Martin, 1979-; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16607; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16607.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We develop a model of endogenous maturity structure for financial institutions that borrow from multiple creditors.  We show that a maturity rat race can occur: an individual creditor can have an incentive to shorten the maturity of his own loan to the institution, allowing him to adjust his financing terms or pull out before other creditors can.  This, in turn, causes all other lenders to shorten their maturity as well, leading to excessively short-term financing.  This rat race occurs when interim information is mostly about the probability of default rather than the recovery in default, and is most pronounced during volatile periods and crises.  Overall, firms are exposed to unnecessary rollover risk"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 4/5/2011.

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