We use the global games approach to study key factors affecting the credit risk
associated with roll-over of bank debt. When creditors are heterogenous, these include
the extent of short-term borrowing and capital market liquidity for repo financing.
Specifically, in a model with a large institutional creditor and a continuum of small
creditors independently making their roll-over decisions based on private information,
we find that increasing the proportion of short-term debt and/or decreasing market
liquidity reduces the willingness of creditors to roll over. This raises credit risk in equilibrium.
The presence of a large creditor does not always reduce credit risk, however,
unless it is better informed