Working Paper: NBER ID: w28088
Authors: Yueran Ma; Jos A. Scheinkman
Abstract: We study asset and debt characteristics of US bank holding companies. We show that financial institutions, especially large institutions, are not just about holding discrete assets. Services and going-concern values are important, and capital market debt against going-concern values accounts for 10% to 15% of total assets, comparable to the volume of capital market debt against discrete assets. We find that financial institutions’ debt against going-concern values has weak monitoring, relative to similar debt among non-financial firms. We argue that weak monitoring prevails because creditors cannot easily punish or restructure these institutions should they violate covenants, which limits covenants’ usefulness.
Keywords: No keywords provided
JEL Codes: G21; G28; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased pledgeable value (G32) | ability to secure debt (F34) |
| weak monitoring (E17) | inability to effectively enforce covenants (P14) |
| opaque structure of financial institutions (G21) | weak monitoring (E17) |
| nature of assets held by financial institutions (G21) | enforcement mechanisms available for debts (F34) |
| going-concern values (G33) | weak monitoring (E17) |