This paper analyses the reforms in the architecture of EMU since the eruption of the euro crisis in 2010. We describe major weaknesses in the original set-up of EMU, such as lack of fiscal discipline, diverging financial cycles and competitiveness positions, and a lack of crisis instruments....

This paper tests for the transmission of the 2007-2010 financial and sovereign debt crises to fifteen EMU countries. We use daily data from 2003 to 2010 on country financial and non-financial stock market indexes. First, we find strong evidence of crisis transmission to European non-financials...

When does the general public lose trust in banks? We provide empirical evidence using responses by Dutch survey participants to eight hypothetical scenarios. We find that members of the general public care strongly about executive compensation. Negative media reports, falling stock prices, and...

This paper models a financial sector in which there is a feedback between individual bank risk and aggregate funding market problems. Greater individual risk taking worsens adverse selection problems on the market. But adverse selection premia on that market push up bank risk taking, leading to...

To what extent was the credit contraction during the global financial crisis due to more intense screening and monitoring by banks? We address this question by analyzing changes in the structure of a large number of syndicated loans to private, non-financial corporations. We find an increase in...

Do tightenings of bank lending standards permanently reduce bank lending? We construct a measure of a bank's level of lending standards using micro-data from the sample of banks participating in the Eurosystem Bank Lending Survey in The Netherlands and show that this level measure affects...

Simultaneous bank defaults are often attributed to interbank contagion, but can also be due to common shocks affecting banks with similar balance sheets. We disentangle both effects by realising that if financial markets expect a bank's default to be contagious, an increase in this bank's...

This paper highlights the impact of credit supply and aggregate demand sensitivity on 91 US industries' stock performance during the 2007-2009 financial crisis. We account explicitly for changes in the market model and investigate, next to stock returns, the changes in systematic risk and...

We analyse the relationship between tail risk and crisis measures by governments and the central bank. Using an adjusted Merton model in a game theoretical set-up, the analysis shows that the participation constraint for interventions by the central bank and the governments is less binding if...

This study presents a core-periphery model to determine the optimal size of the European Stability Mechanism (ESM), building on Jeanne and Ranciere (2011). While the periphery is subject to a probability of losing access to external credit, the core's incentive for setting up an ESM stems...