We introduce an innovative theoretical framework for the valuation and replication of derivative transactions between defaultable entities based on the principle of arbitrage freedom. Our framework extends the traditional formulations based on credit and debit valuation adjustments (CVA and...

This paper analyzes the individual bidding behaviour of German banks in the money market auctions conducted by the ECB from the beginning of the third quarter of 2000 to the end of the first quarter of 2001. Our approach takes a variety of characteristics of the individual banks into account. In...

This paper analyses the role of bank-related constraints in explaining the sharp slowdown in bank lending to non-financial corporations in Germany during the recent financial crisis. We use a panel approach based on a unique data set which matches the individual responses of the banks...

On 3 December EY hosted a SUERF conference on banking reform with Sir Howard Davies, the Chairman of RBS, and Dame Colette Bowe, the Chairman of the Banking Standards Board, as the two keynote speakers. Professor David Miles (Imperial College) gave the SUERF 2015 Annual Lecture on Capital and...

This paper introduces a stress test of the corporate credit portfolios of 24 large German banks by a two-stage approach: First, a macro-econometric model is used to forecast the impact of a substantial increase of the user cost of business capital for firms worldwide on three particularly...

In general, banks play a growth-enhancing role for the real economy. However, distorted incentives for banks, depositors, and regulators in connection with bank insolvency may corrupt banks' credit allocation and monitoring decisions, leading to suboptimal real economic outcomes. A rules-based...

We investigate financial intermediaries' interest rate risk management as the simultaneous decision of on-balance-sheet exposure and interest rate swap use. Our findings show that both decisions are substitute risk management strategies. A higher likelihood of bank distress makes banks reduce...

Most of the literature addressing multiple banking assumes equal financing shares. However, unequal, concentrated or asymmetric bank borrowing is widespread. This paper investigates the determinants of creditor concentration for German firms using a comprehensive bank-firm level dataset for the...

Efficiency is considered a key factor when evaluating a bank's performance. Moreover, efficiency enhancement is an explicit policy objective in the Single Market Directive of the European Commission. But efficiency improvements may come at the expense of deteriorating bank profits and excessive...

Outright bank failures without prior indication of financial instability are very rare. Supervisory authorities monitor banks constantly. Thus, they usually obtain early warning signals that precede ultimate failure and, in fact, banks can be regarded as troubled to varying degrees before...