Description: Sovereign Bailouts and Senior Loans

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Sovereign Bailouts and Senior Loans

Institutional lending in crisis is evaluated from a theoretical point of view. First, the share of senior loans in new loans is irrelevant under a given probability distribution of the country's resources. Second, seniority may partially allev...

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Bibliographic Details
Main Authors:	Chamley, Christophe, Pinto, Brian
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ARBITRAGE ASSETS BAILOUT BAILOUTS BALANCE SHEET BANKRUPTCY BOND BOND HOLDERS BOND SPREADS BONDHOLDERS BORROWER BORROWING BORROWING COST CENTRAL BANK CLAIM CLASS OF DEBT COMPETITIVE MARKETS CONTINGENT DEBT COST OF DEBT COUPON CREDIT MARKET CREDITOR DEBT DEBT CONTRACT DEBT CONTRACTS DEBT CRISES DEBT FORGIVENESS DEBT MATURITY DEBT PAYMENT DEBT PAYMENTS DEBT REDUCTION DEBT REDUCTIONS DEBT SERVICE DEBT SERVICE BURDEN DEBT SERVICING DEFAULT PENALTY DEFAULT PROBABILITIES DEFAULTS DEFICITS DEVELOPMENT POLICY DIVIDEND ECONOMIC HISTORY ECONOMIC THEORY EQUILIBRIUM EXPECTED RETURN EXPECTED VALUE EXTERNAL FINANCING FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL SHOCK FINANCIAL STABILITY FINANCING REQUIREMENTS FISCAL EFFORTS FOREIGN LENDERS FOREIGN LOANS FORMAL ANALYSIS GDP GOVERNMENT BONDS INCOME INEFFICIENCY INSOLVENCY INSTITUTIONAL LOAN INSTITUTIONAL LOANS INTEREST RATE INTEREST RATES INTEREST REDUCTIONS INTERNATIONAL BANK INTERNATIONAL CRISIS LENDING IPOS JUNIOR DEBT LARGE CREDITORS LARGE NUMBER OF CREDITORS LENDER LENDERS LEVEL OF RISK LIQUIDITY LIQUIDITY CRISES LOAN CONTRACT LOAN RATE LOAN RATES LOAN REPAYMENT LONG-TERM DEBT LOW INTEREST RATE LOWER DEBT MARGINAL COST MARGINAL COST OF DEBT MARGINAL PRODUCTIVITY MARKET VALUE MORAL HAZARD NEGATIVE SHOCKS NEGOTIATION NEGOTIATIONS OLD BONDS OLD DEBT OPPORTUNITY COST OPTIMAL CONTRACTS PENALTY FOR DEFAULT PRIVATE CREDITORS PRIVATE DEBT PRIVATE INVESTORS PRIVATE LENDERS PRIVATE LENDING PRIVATE LOAN PRIVATE LOANS PRIVATE PARTIES PROBABILITY OF DEFAULT PUBLIC DEBT PUBLIC DEBT MANAGEMENT RATE OF RETURN REMEDY REPAYMENT REPAYMENT SCHEDULE REPUDIATION RETURN RISK-FREE INVESTMENT RISK-FREE RATE SENIOR BONDS SHORT-TERM DEBT SOVEREIGN DEBT SOVEREIGN LENDING STANDARD DEBT CONTRACT TAX TAXATION TOTAL DEBT
Online Access:	http://documents.worldbank.org/curated/en/2012/08/16631805/sovereign-bailouts-senior-loans http://hdl.handle.net/10986/12030

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Summary:	Institutional lending in crisis is evaluated from a theoretical point of view. First, the share of senior loans in new loans is irrelevant under a given probability distribution of the country's resources. Second, seniority may partially alleviate the inefficiency of debt contracts when the distribution of resources is endogenous to the country's physical investment and effort towards success. Third, with multiple lending rate equilibria, institutional lending may induce a switch to a lower private loan rate if it can be done in a sufficiently large amount. Fourth, conditions are analyzed under which debt forgiveness is efficient under a financial shock.