Debt concentration and secondary market prices

Abstract

Using a model that distinguishes between large money center banks and smaller regional banks, this paper shows that the percentage of a country's debt held by the large banks affects the secondary market price of that country's debt: the higher the concentration of the debt, the higher the secondary market price. It also shows that if debt is freely traded in the secondary market, the entire stock of debt will not eventually end up being owned by the large banks. The authors'empirical analysis incorporates several potential determinants of secondary market prices: variables associated with a country's economic performance, variables that can be associated with the creditor country's regulatory structure, and the concentration of debt in the hands of the largest U.S. banks.Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,Financial Crisis Management&Restructuring,Environmental Economics&Policies