Endogenous Debt Maturity and Rollover Risk

We empirically study the nature of rollover risk and show how banks manage it. Having to roll over debt does not lead to higher default risk per se. Only banks that lose significant access to new funding while having to roll over debt display higher default risk. We identify a factor that determines this build-up of risk: specifically, debt maturity shortening (forcing debt to be more frequently rolled) and reduced access to new funding are both driven by market pessimism about bank's future performance. We also provide evidence consistent with dynamic coordination risk