The costs and benefits of moral suasion: Evidence from the rescue of long-term capital management

Craig Furfine*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

This study examines the level of unsecured borrowing done by the firms that ultimately rescued Long-Term Capital Management in the days leading up to the hedge fund's rescue. Although these banks borrowed less at the height of the crisis, evidence suggests that this reduction in borrowing was demand-driven and did not result from rationing by the market. Further, it is shown that large banks that were not involved with the LTCM rescue saw the rates they pay for unsecured funds decline following the hedge fund's resolution. This finding is consistent with an increase in the strength of a too-big-to-fail policy.

Original languageEnglish (US)
Pages (from-to)593-622
Number of pages30
JournalJournal of Business
Volume79
Issue number2
DOIs
StatePublished - Mar 2006

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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