NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Global Banks Spread Global Imbalances? The Case of Asset-Backed Commercial Paper During the Financial Crisis of 2007-09

Viral V. Acharya, Philipp Schnabl

NBER Working Paper No. 16079
Issued in June 2010
NBER Program(s):   CF   IFM

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. We examine this explanation by analyzing the geography of asset-backed commercial paper (ABCP) conduits set up by large commercial banks. We show that both banks located in surplus countries and banks located in deficit countries manufactured riskless assets of $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. We conclude that global banking flows, rather than global imbalances, determined the geography of the financial crisis.

download in pdf format
   (405 K)

email paper

This paper is available as PDF (405 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Acharya, Schnabl, and Suarez w15730 Securitization without risk transfer
Frankel and Saravelos w16047 Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis
Cetorelli and Goldberg w15974 Global Banks and International Shock Transmission: Evidence from the Crisis
Caballero w15636 The "Other" Imbalance and the Financial Crisis
Caballero and Krishnamurthy w14688 Global Imbalances and Financial Fragility
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us