What Determines Creditor Recovery Rates

Abstract

The 2007-09 financial crisis illustrated the importance of healthy banks for the overall stability of the financial system and economy. Because banking is inherently risky, the health of banks depends importantly on their ability to manage risk and the associated exposure to losses. The crisis revealed that risk management at banks and other financial institutions had shortcomings. As a result, the riskiness of their loans and other investments resulted in large losses that arguably contributed to the severity of the recession. An important component of a strong risk management system is a bank’s ability to assess the potential losses on its investments. One factor that determines the extent of losses is the recovery rate on loans and bonds that are in default. The recovery rate measures the extent to which the creditor recovers the principal and accrued interest due on a defaulted debt. While financial companies, their regulators, and researchers commonly assume that the recovery rate is constant, in practice,

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 30 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.