This paper discusses liquidity regulation when short-term funding enables credit growth but generates negative systemic risk externalities. It focuses on the relative

Under the new Capital Accord, banks choose between two different types of risk management systems, the standard or the internal rating based approach. The paper considers how a bank's preference for a risk management system is affected by the presence of supervision by bank regulators. The model...

While financial liberalization has in general favorable effects, reforms in countries with poor regulation is often followed by financial crises. We explain this variation as the outcome of lobbying interests capturing the reform process. Even after liberalization, market investors must rely on...

Entry requires external finance, especially for less wealthy entrepreneurs, so poor investor protection limits competition. We model how incumbents lobby harder to block access to finance to entrants when politicians are less accountable to voters. In a broad cross-section of countries and...

We develop a model of endogenous lobby formation in which wealth inequality and political accountability undermine entry and financial development. In- cumbents seek a low level of effective investor protection to prevent potential entrants from raising capital. They succeed because they can...

This survey reviews the literature on the political economy of financial structure, broadly defined to include the size of capital markets and banking systems as well as the distribution of access to external finance across firms. The theoretical literature on the institutional basis for...

We allow the preference of a political majority to determine both the corporate governance structure and the division of profits between human and financial capital. In a democratic society where financial wealth is concentrated, a political majority may prefer to restrain governance by...

Patton and Timmermann (2011, 'Forecast Rationality Tests Based on Multi-Horizon Bounds', <I>Journal of Business & Economic Statistics</I>, forthcoming) propose a set of useful tests for forecast rationality or optimality under squared error loss, including an easily implemented test based on a...</i>

In this paper we compare the predictive abilility of Stochastic Volatility (SV) models to that of volatility forecasts implied by option prices. We develop an SV model with implied volatility as an exogeneous var able in the variance equation which facilitates the use of statistical tests for...

We study the dependence between the downside risk of European banks and insurers. Since the downside risk of banks and insurers differs, an interesting question from a supervisory point of view is the risk reduction that derives from diversification within large banks and financial...