Debt, Financial Fragility, and Systemic Risk

Contents......Page 6
List of Charts and Figures......Page 10
List of Tables......Page 11
Introduction......Page 14
(1) The Nature of the Debt Contract......Page 17
(2) Aspects of the Economics of Debt......Page 18
(3) Theories of Credit Rationing......Page 22
(4) Theories of Intermediation......Page 29
(5) Aspects of the Structure and Development of Financial Systems......Page 36
Appendix: The Development of Financial Systems—a Long View......Page 41
(1) Recent Trends in Corporate Sector Indebtedness......Page 45
(2) Theories of Corporate Debt......Page 53
(3) Costs of Bankruptcy......Page 57
(4) Explaining Relative Levels of Corporate Indebtedness......Page 61
(5) Explaining Divergences From Structural Patterns of Gearing......Page 63
(6) Company Sector Debt and Default......Page 71
Conclusions......Page 85
(1) Recent Trends in Personal-Sector Indebtedness......Page 88
(2) Theoretical Considerations: the Household-Sector Demand for Credit......Page 93
(3) An Interpretation of Patterns of Indebtedness......Page 97
(4) Personal-Sector Debt and Default......Page 103
(5) Personal Debt, Saving, and Asset Prices......Page 110
Conclusions......Page 111
(1) Effects on Other Companies......Page 114
(2) Effects on Public Expenditure......Page 115
(3) Effects on Economic Policy......Page 116
(5) Effects Operating via the Financial System......Page 117
(7) Volatility of Asset Prices......Page 120
(8) Bank Insolvency......Page 121
(9) Financial Fragility: a Case-study......Page 123
Conclusions......Page 126
Appendix: Public Debt and Financial Fragility......Page 128
5. THE ECONOMIC THEORY OF SYSTEMIC RISK......Page 130
(1) Bank Runs......Page 131
(2) Financial Regulation against Systemic Risk......Page 135
(3) Debt and Financial Fragility......Page 140
(4) The Monetarist Approach......Page 143
(5) Rational Expectations......Page 146
(6) Uncertainty......Page 147
(7) Credit Rationing......Page 149
(8) Asymmetric Information and Agency Costs......Page 154
(9) Dynamics of Dealer Markets......Page 156
Conclusions......Page 159
6. FINANCIAL INSTABILITY 1966–1990......Page 160
(1) Wholesale Market Structure and Dynamics......Page 161
(2) Six Episodes of Financial Instability......Page 165
(3) Price and Quantities in the Financial Markets 1966–90......Page 180
(4) A Comparative Empirical Analysis of the Periods of Instability......Page 189
(5) The Theory of Crises Viewed in the Light of Empirical Evidence......Page 203
Conclusions......Page 210
Appendix 1: Euromarkets during the 1987 Crash......Page 215
Appendix 2: Prediction of Systemic Risk: a Simple Econometric Test......Page 218
7. SYSTEMIC RISK AND FINANCIAL MARKET STRUCTURE......Page 221
(1) Theories of Financial Crisis......Page 222
(2) Recent Developments in Industrial Economics and their Application to Financial Markets......Page 225
(3) An Industrial Approach to Financial Instability......Page 229
(4) Structural Reasons for Overshooting......Page 236
(5) Financial Instability: a Re-examination......Page 242
(6) New Entry without Instability......Page 249
Conclusions......Page 251
Appendix: The Industrial Economics of the Primary Eurobond Market......Page 254
(1) Overend Gurney (1866)—UK......Page 258
(2) The Stock-Market Crash and the Great Depression (1929–1933)—USA......Page 259
(3) The Yamaichi Rescue (1965)—Japan......Page 262
(4) The Penn Central Bankruptcy (1970)—USA......Page 263
(5) The Continental Illinois Bank Failure (1984)—USA......Page 264
(6) The Canadian Regional Banking Crisis (1985)......Page 265
(7) The Collapse of the High-Yield (Junk) Bond Market (1989)—USA......Page 266
(8) Instability in Australia in the Late 1980s......Page 267
(9) The Swedish Finance Company Crisis (1990)......Page 269
(10) The Norwegian Banking Crisis 1990–1991......Page 270
Conclusions......Page 272
(1) Financial Fragility over 1988–1993......Page 277
(2) Studies of National Experience of Financial Fragility......Page 289
(3) Systemic Risk 1991–1994......Page 296
Conclusions......Page 308
(1) Bank Lending to Finance Real Estate......Page 309
(2) Pricing of Bank Risk......Page 312
(3) The Future of Banking......Page 316
(4) The Credit Channel of Monetary Policy Transmission......Page 321
(5) Derivatives......Page 324
(6) Market-Liquidity Risk......Page 327
(7) Institutional Investors and Financial Instability......Page 331
(8) Risk in Payments and Settlements Systems......Page 336
Conclusions......Page 340
(1) Issues of Finance......Page 342
(2) Regulatory Issues......Page 348
(3) Financial Structure and Behaviour......Page 355
(4) Prospects......Page 360
B......Page 364
C......Page 365
E......Page 366
F......Page 367
L......Page 368
N......Page 369
R......Page 370
S......Page 371
Y......Page 372
REFERENCES......Page 373
C......Page 396
D......Page 397
F......Page 398
I......Page 399
P......Page 400
U......Page 401
Y......Page 402
C......Page 403
H......Page 404
P......Page 405
Y......Page 406