Do Global Banks Spread Global Imbalances? Asset-Backed Commercial Paper during the Financial Crisis of 2007–09
Viral Acharya () and
Philipp Schnabl ()
IMF Economic Review, 2010, vol. 58, issue 1, 37-73
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. This paper examines this explanation by analyzing the geography of asset-backed commercial paper (ABCP) conduits set up by large commercial banks. The paper shows that banks in surplus countries as well as banks in deficit countries manufactured riskless assets, totaling over $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. The paper concludes that global banking flows, rather than global imbalances, determined the geography of the financial crisis.
References: Add references at CitEc
Citations: View citations in EconPapers (62) Track citations by RSS feed
Downloads: (external link)
http://www.palgrave-journals.com/imfer/journal/v58/n1/pdf/imfer20104a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/imfer/journal/v58/n1/full/imfer20104a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pal:imfecr:v:58:y:2010:i:1:p:37-73
Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2
Access Statistics for this article
More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla ().