Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/127988
Authors: 
Birchler, Urs W.
Year of Publication: 
1999
Series/Report no.: 
Working Paper, Study Center Gerzensee 00.01
Abstract: 
Over the past decade several countries, including the US, have introduced or redesigned legislation that confers priority in bankruptcy upon all or some bank deposits. We argue that in the presence of contracting costs such rules can increase efficiency. We first show in a private information model that a borrower can reduce overall costs of finance by letting informationally heterogeneous lenders choose between junior and senior debt. In particular, we find that debt priorities reduce socially wasteful information gathering by investors. We then argue why, particularly in banking, legal standardization of debt priorities may be superior to bilateral private arrangements.
Document Type: 
Working Paper

Files in This Item:
File
Size
415.62 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.