Global Banks and Systemic Debt Crises

Juan M. Morelli, Pablo Ottonello, Diego J. Perez

    Research output: Contribution to journalArticlepeer-review


    We study the role of global financial intermediaries in international lending. We construct a model of the world economy, in which heterogeneous borrowers issue risky securities purchased by financial intermediaries. Aggregate shocks transmit internationally through financial intermediaries' net worth. The strength of this transmission is governed by the degree of frictions intermediaries face in financing their risky investments. We provide direct empirical evidence on this mechanism showing that around Lehman Brothers' bankruptcy, emerging-market bonds held by more distressed global banks experienced larger price contractions. A quantitative analysis of the model shows that global financial intermediaries play a relevant role in driving borrowing-cost and consumption fluctuations in emerging-market economies, during both debt crises and regular business cycles. The portfolio of financial intermediaries and the distribution of bond holdings in the world economy are key to determine aggregate dynamics.

    Original languageEnglish (US)
    Pages (from-to)749-798
    Number of pages50
    Issue number2
    StatePublished - Mar 2022


    • Financial intermediaries
    • external debt crises
    • heterogeneous-agent models
    • international lending
    • sovereign default
    • sudden stops

    ASJC Scopus subject areas

    • Economics and Econometrics


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