This paper investigates whether European banks have capital targets and how deviations from the target impact their equity composition and activity mix. Using quarterly data for a sample of large European banks between 2004 and 2011, we show that there are notable asymmetries in banks’...

The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility (“uncertainty”), we find that a lax monetary policy decreases...

The Regulation on the Single Supervisory Mechanism mandates the European Central Bank to exercise prudential supervision on the banks located in the Euro area, whether directly by the Bank’s own services for the significant banks, or indirectly by the national prudential supervisors but under...

The aims of this paper are twofold: first, we attempt to express the threshold of a single “A” rating as issued by major international rating agencies in terms of annualised probabilities of default. We use data from Standard & Poor’s and Moody’s publicly available rating histories to...

This paper studies the potential impact on securities settlement systems (SSSs) of a major market disruption, caused by the default of the largest player. A multiperiod, multisecurity model with intraday credit is used to simulate direct and second-round settlement failures triggered by the...

Robust (cross-border) interbank markets are important for the well functioning of modern financial systems. Yet, a network of interbank exposures may lead to domino effects following the event of an initial bank failure. The structure of the interbank market is a potential important driving...

We present a dynamic microstructure model where a dealer market (DM) and a crossing network (CN) interact. Sequentially arriving traders with different valuations for an asset maximise their profits either by trading on a DM or by submitting an order for (possibly) uncertain execution via a CN....

Structured finance instruments represent a form of securitization technology which can be defined by the characteristics of pooling of financial assets, delinking of the credit risk of the asset pool from the credit risk of the originating intermediary, and issuance of tranched liabilities...