Passive Creditors*

Abstract

Creditors are often passive because they are reluctant to show bad debts on their balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights in the phenomenon of creditor passivity, both in transitional and developed market economies. Policy implications are deduced. The model also explains in what respect banks differ from enterprises and what this implies for policy. Commonly observed phenomena in the banking sector, such as deposit insurance, lender of last resort facilities, government coordination to work out bad loans and special bank closure provisions are interpreted in our framework.

Are private banks more efficient than public banks?

“…The average loan quality was negatively affected by the combined problems of connected lending, soft legal constraints, information asymmetries and the lack of screening and monitoring skills. A leaked analysis of Russian banks after the crisis of August 1998 shows that the major problem for banks was not the devaluation loss or the government default on treasury bills, but bad loans hidden and accumulated during the preceding period 4 Schoors and Sonin (2005). explain how the Russian banking system was stuck in a passivity trap, where it is rational for each individual bank to hide bad loans rather than collect them.…”

Research on the Risk Measurement Algorithm of Supply Chain Order Financing Based on Insurance Actuarial

“…Especially for the more advanced order financing business model in the actual case of supply chain finance, the theoretical research on its business risk identification, measurement, and later risk control is still far from meeting the real business development [7,8]. Coupled with the advanced and operational nature of the order financing business and its application, this business model will become the main business model in the supply chain finance business model, and its business scope and business volume will account for a larger and larger proportion of the supply chain finance business, and its importance to the financing needs of SMEs and business development will become more and more prominent.…”