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Passive Creditors

Koen Schoors and Konstantin Sonin ()

No 4821, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Creditors are often passive because they are reluctant to show bad debts on their own balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights into the phenomenon of creditor passivity, both in transition and developed market economies. Policy implications are deduced. The model also explains in what respect banks differ from enterprises and what this implies for policy. Commonly observed phenomena in the banking sector, such as deposit insurance, lender of last resort facilities, government coordination to work out bad loans and special bank closure provisions, are interpreted in our framework.

Keywords: arrears; bad loans; bank closure; bankruptcy; creditor passivity (search for similar items in EconPapers)
JEL-codes: G21 G28 G33 P50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-fmk
Date: 2004-12
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