The objective of this paper is to provide a balanced assessment of international cooperation among financial regulators, with a focus on banking supervision. While recognizing the undeniable – and even unexpected – achievements of these regulators in building a cooperative framework for...

What information about the financial condition of firms is conducive to efficient and stable operation of the financial system and of the economy more broadly? In this essay, we outline the contours of an ideal set of such information, identify existing gaps and propose a way forward to fill...

This paper links banking with asset prices in a monetary macroeconomic model. The main innovation is to consider how falling asset prices affect the banking system through wide-spread borrower default, while deriving explicit solutions and balance sheet effects even far from the steady state. We...

Stylised facts suggest that bank lending behaviour is highly procyclical. We offer a new hypothesis that may help explain why this occurs. The institutional memory hypothesis is driven by deterioration in the ability of loan officers over the bank.s lending cycle that results in an easing of...

Prompt Corrective Action (PCA) prescribes prompt and deterministic termination of banks with insufficient levels of book-value capital. This paper investigates whether reliance on book-value capital is a good policy choice and if PCA is an optimal regulatory approach. I use a variant of DeMarzo...

We study empirically the effect of focus (specialization) vs. diversification on the return and the risk of banks using data from 105 Italian banks over the period 1993-1999. Specifically, we analyze the tradeoffs between (loan portfolio) focus and diversification using a unique data set that is...

This paper analyses the impact of various assumptions about the association between aggregate default probabilities and the loss given default on bank loans and corporate bonds, and seeks to empirically explain this critical relationship. Moreover, it simulates the effects of this relationship...

This paper investigates whether a bank regulator should terminate problem banks promptly or exercise forbearance. We construct a dynamic model economy in which entrepreneurs pledge collateral, borrow from banks, and invest in long-term projects. We assume that collateral value has aggregate risk...

When supervisors have imperfect information about the soundness of banks, they may be unaware of insolvency problems that develop in the interval between on-site examinations. Supervising banks more often will alleviate this problem but will increase the costs of supervision. This paper analyzes...

This paper proposes a model in which bank runs are closely related to the state of the business cycle. The benchmark model shows that, in a market economy, there are welfare losses due to the existence of bank runs. Extensions of the model explore the welfare effects of various government...