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Passive Creditors *
Author(s) -
Schoors Koen,
Sonin Konstantin
Publication year - 2005
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/j.1367-0271.2005.00151.x
Subject(s) - creditor , economics , debt , deposit insurance , balance sheet , passivity , monetary economics , government (linguistics) , externality , work (physics) , balance (ability) , financial system , macroeconomics , finance , microeconomics , mechanical engineering , linguistics , philosophy , electrical engineering , engineering , medicine , physical medicine and rehabilitation
Creditors are often passive because they are reluctant to show bad debts on their balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights in the phenomenon of creditor passivity, both in transitional 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.