The current financial crisis, which has lasted almost one and a half years, is the 19th such crisis in the post-war period in advanced economies. Recent literature classifies the Nordic crises in Norway, Sweden and Finland in late 1980's and early 1990’s among the Big Five crises that have...

The paper analyzes bank loan supply in a simple value maximizing partial equilibrium framework. The focus is on the role of bank capital, capital regulation and the pricing of bank liabilities. The model is constructed so as to resemble the situation of the Finnish local banks in the late 1980s...

Building on Cecchetti and Li (2005), we show that the bank lending channel affects monetary policy trade-offs only when interest rates affect marginal costs of production (ie when there is a cost channel of monetary policy) in the New Keynesian monetary policy model. In our calibrated model the...

The paper examines the determination of bank lending during the Finnish credit boom of 1986–1990 with the data of 483 savings and cooperative banks. A particular objective is to establish whether bank behaviour is consistent with what is called moral hazard hypothesis, according to which banks...

The paper examines the determination of bank lending in the early 1990s with the data on 393 savings and cooperative banks. Particular attention is paid to the respective roles of bank capital and costs on the one hand and borrower quality on the other hand. The findings do not support the...

We present a model of risky debt in which collateral value is correlated with the possibility of default. The model is then used to study: 1) the expected amount of debt recovered in the event of default as a function of collateral; and 2) the amount of collateral needed to mitigate the...

Building on the work of Sorge and Virolainen (2006), we revisit the data on aggregate Finnish bank loan losses from the corporate sector, which covers the ‘Big Five’ crisis in Finland in the early 1990s. Several extensions to the empirical model are considered. These extensions are then used...

Although beneficial allocational effects have been a central motivator for the Basel II capital adequacy reform, the interaction of these effects with Basel II’s procyclical impact has been less discussed. In this paper, we investigate the effect of capital requirements on the allocation of...

Basel II framework requires banks to conduct stress tests on their potential future minimum capital requirements and consider ‘at least the effect of mild recession scenarios’. We propose a stress testing framework for minimum capital requirements in which banks’ corporate credit risks are...