Ending the dependence on rating agencies is a top priority for the Financial Stability Board, which coordinates the G20 financial policies. Rating agencies have been accused of contributing to the recent financial crisis by misjudging the creditworthiness of mortgage-backed securities. Their...

Following the 2008 financial crisis, regulation mandates the clearing of the CDS market through Central Clearing Counter-parties (CCPs). Large CCPs are now designated as 'Global Systemically Important Institutions' (GSIIs), whose unlikely-but-plausible failure threatens global financial market...

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank- rm level credit data, we show that banks reallocate credit within their domestic loan portfolio in at least three different ways. First, banks reallocate to sectors where...

Market design matters when heterogeneous borrowers roll over loans, facing funding shocks. Borrower anonymity is a key feature of various financial markets, such as short term, interbank lending markets. We show that anonymous markets experience systemic runs for large shocks, but provide...

The spread between unsecured and repo rates (collateral spread) fluctuates substantially and is negative on a significant portion of days. Recent theoretical work argues that collateral spreads are determined by a constrained-arbitrage relation between the unsecured rate, the repo rates, and the...

Repo rates frequently exceed unsecured rates in practice. As an explanation, this paper derives a constrained-arbitrage relation between the unsecured rate, the repo rate, and the illiquidity adjusted expected rate of return of the underlying collateral. The theory is based on unsecured...