Working Paper no. 201
By Prasanna Gai and Hyun Song Shin
Recent experience with financial crises has led to scepticism about the efficacy of crisis management measures that target short-term debt, such as the voluntary/concerted rollovers of interbank lines. Such measures, it is suggested, heighten financial fragility by encouraging creditors to pre-empt each other by lending at ever shorter maturities. We model such pre-emptive behaviour explicitly and explore the implications for the maturity profile of debt. We find that crisis management instruments designed to improve the recovery process for claimholders do not necessarily skew the maturity structure towards the shorter term.