London Business School
NBER Working Papers and Publications
|February 2012||Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective|
with Kay Giesecke, Francis A. Longstaff, Ilya Strebulaev: w17854
Using an extensive new data set on corporate bond defaults in the U.S. from 1866 to 2010, we study the macroeconomic effects of bond market crises and contrast them with those resulting from banking crises. During the past 150 years, the U.S. has experienced many severe corporate default crises in which 20 to 50 percent of all corporate bonds defaulted. Although the total par amount of corporate bonds has often rivaled the amount of bank loans outstanding, we find that corporate default crises have far fewer real effects than do banking crises. These results provide empirical support for current theories that emphasize the unique role that banks and the credit and collateral channels play in amplifying macroeconomic shocks.
Published: Journal of Financial Economics Volume 111, Issue 2, February 2014, Pages 297–310 Cover image Macroeconomic effects of corporate default crisis: A long-term perspective ☆ Kay Gieseckea, Francis A. Longstaffb, c, , , Stephen Schaeferd, Ilya A. Strebulaeve, c
|March 2010||Corporate Bond Default Risk: A 150-Year Perspective|
with Kay Giesecke, Francis A. Longstaff, Ilya Strebulaev: w15848
We study corporate bond default rates using an extensive new data set spanning the 1866-2008 period. We find that the corporate bond market has repeatedly suffered clustered default events much worse than those experienced during the Great Depression. For example, during the railroad crisis of 1873-1875, total defaults amounted to 36 percent of the par value of the entire corporate bond market. We examine whether corporate default rates are best forecast by structural, reduced-form, or macroeconomic credit models and find that variables suggested by structural models outperform the others. Default events are only weakly correlated with business downturns. We find that over the long term, credit spreads are roughly twice as large as default losses, resulting in an average credit risk premiu...
Published: Corporate Bond Default Risk: A 150-Year Perspective (with K. Giesecke, I. Strebulaev, and S. Schaefer), Journal of Financial Economics 102, 233-250, 2011.
|January 2007||Pillar 1 versus Pillar 2 under Risk Management|
with Loriana Pelizzon
in The Risks of Financial Institutions, Mark Carey and René M. Stulz, editors
|October 2005||Pillar 1 vs. Pillar 2 Under Risk Management|
with Loriana Pelizzon: w11666
Under the New Basel Accord bank capital adequacy rules (Pillar 1) are substantially revised but the introduction of two new "Pillars" is, perhaps, of even greater significance. This paper focuses on Pillar 2 which expands the range of instruments available to the regulator when intervening with banks that are capital inadequate and investigates the complementarity between Pillar 1 (risk-based capital requirements) and Pillar 2. In particular, the paper focuses on the role of closure rules when recapitalization is costly. In the model banks are able to manage their portfolios dynamically and their decisions on recapitalization and capital structure are determined endogenously. A feature of our approach is to consider the costs as well as the benefits of capital regulation and to accommodate...
Published: Loriana Pelizzon & Stephen Schaefer, 2007. "Pillar 1 versus Pillar 2 under Risk Management," NBER Chapters, in: The Risks of Financial Institutions, pages 377-416 National Bureau of Economic Research, Inc.