Financial institutions are increasingly linked internationally. As a result, financial crisis and government intervention have stronger effects beyond borders. We provide a model of international contagion allowing for bank bailouts. While a social planner trades off tax distortions, liquidation...

We examine to what extent banks’ stock market values during the 2007-2012 financial crisis were driven by increases in the default risk of banks designated as globally systemically important by the Financial Stability Board. We find that bank market values hardly respond to changes in the...

The current financial crisis has sparked intense debate about how weak banks should be resolved. Despite international efforts to coordinate and converge on such policies, national policy advice and resolution practices differ. The resolution methods adopted in the Nordic banking crises in the...

Interbank claims are a concern to regulators as they might facilitate the dissemination of defaults and generate spill-over effects. Building on a simple model, this paper introduces a measure of the spill-over effects that a bank generates when it defaults. The measure is based on an explicit...

Bank distress can have severe negative consequences for the stability of the financial system, the real economy, and public finances. Regimes for restructuring and restoring banks financed by bank levies and fiscal backstops seek to reduce these costs. Bank levies attempt to internalize systemic...

This paper uses data from a panel of more than 400 Italian banks for the period 2001 – 2012 to examine the main determinants of loan loss provision (LLP), which are classified as either discretionary (income smoothing, capital management, signalling) or non-discretionary (related to the...

This paper analyzes the effect of the removal of government guarantees on bank risk taking. We exploit the removal of guarantees for German Landesbanken which results in lower credit ratings, higher funding costs, and a loss in franchise value. This removal was announced in 2001, but...

This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks’ balance sheets doubled in the course of the 20th century, driven by a sharp rise of...

We develop a model where banks invest in reserves and loans, and face aggregate liquidity shocks. Banks with liquidity shortage sell loans on the interbank market. Two equilibria emerge. In the no default equilibrium, all banks hold enough reserves and remain solvent. In the mixed equilibrium,...

The severity and depth of the recent financial crisis hit many by surprise. Despite warning signs, the financial system seems to have been unable to aggregate existing information. As the events of Fall 2008 showed, many investors were caught off guard by the large number of banks collapsing...