The commercial crisis of 1847

This study attempts to provide a descriptive and analytical account of the origins of the British Commercial Crisis of 1847. The approach adopted is as follows: An introductory chapter outlines the main questions to be studied and provides a brief narrative account of the development of the crisis. Subsequent chapters examine the develop­ment of the crisis through individual sectors of the economy and by way of certain key economic variables. Chapters II to VI concentrate on aspects of the railway investment boom, aggregate income and consumption, and the experience of four major industries - house-building, coal-mining, and iron and cotton goods manufacture. Chapter VII looks at money and banking aspects of the crisis and deals especially with the role of the Bank of England. It also considers other parts of the banking system as well as some aspects of railway investment not discussed in earlier chapters. Questions of trade and the balance of payments are examined in Chapter VIII. The chapter also considers the immediate causes of failure among mercantile houses during the crisis of 1847. The final chapter summarizes the principal conclusions contained in the preceding chapters

Coronavirus and financial stability 3.0: Try equity – risk sharing for companies, large and small

This policy letter adds to the current discussion on how to design a program of government assistance for firms hurt by the Coronavirus crisis. While not pretending to provide a cure-all proposal, the advocated scheme could help to bring funding to firms, even small firms, quickly, without increasing their leverage and default risk. The plan combines outright cash transfers to firms with a temporary, elevated corporate profit tax at the firm level as a form of conditional payback. The implied equity-like payment structure has positive risk-sharing features for firms, without impinging on ownership structures. The proposal has to be implemented at the pan-European level to strengthen Euro area resilience

Collateral and Debt Maturity Choice. A Signaling Model

This paper derives optimal loan policies under asymmetric information where banks offer loan contracts of long and short duration, backed or unbacked with collateral. The main novelty of the paper is that it analyzes a setting in which high quality firms use collateral as a complementary device along with debt maturity to signal their superiority. The least-cost signaling equilibrium depends on the relative costs of the signaling devices, the difference in firm quality and the proportion of good firms in the market. Model simulations suggest a non-monotonic relationship between firm quality and debt maturity, in which high quality firms have both long-term secured debt and short-term secured or non-secured debt.