Yoshiyuki Arata, 13 February 2019

The complex networks formed through customer–supplier relationships between firms have the potential to propagate shocks across the economy. This column explores how bankruptcy is propagated through a network of approximately one million Japanese firms. Bankruptcy propagation is observed empirically, but only very infrequently and with very limited reach. This is because the increased connectivity between firms disperses bankruptcy shocks such that they immediately die out. 

Shekhar Aiyar, Anna Ilyina, Andreas Jobst, 05 November 2015

European banks are struggling with high levels of non-performing loans. This column explores the channels through which persistently high non-performing loans hold down credit growth and economic activity. A survey of EU authorities and banks reveals that the loans are not written-off for a variety of deep-seated reasons, including legal and tax code issues. An agenda is proposed comprising tightened bank supervision, structural bankruptcy reforms, and the development of markets for distressed assets.

Marco Buti, Philipp Mohl, 04 June 2014

Investment in the Eurozone is forecast to remain below trend until 2015, with a particularly large shortfall in the periphery. Low investment reduces aggregate demand, thus lowering short-term growth, and it also hampers medium-term growth through its effect on the capital stock. This column highlights three causes of low Eurozone investment – reduced public investment, financial fragmentation, and heightened uncertainty – and proposes a series of remedies.

Xavier Freixas, 01 September 2012

Before 2007, the widely accepted view was that systemic banks had to be bailed out no matter what. This column argues that views are changing – and for the better.

Jialan Wang, 07 April 2012

In 2005, the US Bankruptcy Abuse Prevention and Consumer Protection Act raised the costs to households of filing for bankruptcy by 60%. While the law was designed to prevent abuse by wealthy debtors, this column presents evidence that the higher costs inhibit filings by financially distressed households who cannot afford the fees, adding “insult to injury for households that are already broke”.

Enrico Perotti, 13 October 2010

CEPR Policy Insight No.52 highlights how the 2005 bankruptcy changes created a negative externality for all intermediaries in liquidity runs, the leading cause of shock propagation in the credit crisis

Enrico Perotti, 13 October 2010

How did the bank-funding system get so fragile to mletdown and lead to the worst crisis since WWII? In a new CEPR Policy Insight, Enrico Perotti argues that an important part of the answer lies in the bankruptcy privileges granted in 2005 to overnight secured credit and derivatives by the US authorities. These privileges made such lending safe for the lenders and thus cheap for the borrowers. The result was fantastic growth in this market to the detriment of stability.

Michelle White, Wenli Li, 01 December 2009

Did US bankruptcy laws exacerbate the housing crisis? This column says that a 2005 reform that made declaring personal bankruptcy more difficult increased mortgage defaults and home foreclosures. It recommends reversing that legislation to reduce the number of foreclosures, which have high social costs.

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