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...

This paper analyses the evolution of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. In the first part we document the evolution of various measures of systemic risk as the Basel process unfolds. Most strikingly, we...

It has been proposed that the potential procyclicality of Basel II could be alleviated by using through-the-cycle (TTC) ratings in IRBA models. A TTC rating would be based on the structural component of the debtor's credit risk ignoring cyclical fluctuations. This paper tests for the existence...

The present crisis has revealed that, as expected, much of the safety net for handling failures in the banking system is deficient, particularly for cross-border banks, and the present problems had to be handled by a range of ad hoc measures. The principal new measure that needs to be undertaken...

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...

In the discussion paper, we employ data on industry-specific corporate sector bankruptcies over the time period from 1986 to 2003 and estimate a macroeconomic credit risk model for the Finnish corporate sector.The sample period includes a severe recession with significantly higher-than-average...

Using a spatial competition model of retail payment networks, this paper discusses the likely economic consequences associated with the formation of the Single Euro Payments Area (SEPA). The model considers an expansion of positive network externalities on the demand side and adjustment cost on...

The developed world exhibits substantial but poorly understood differences in the efficiency and quality of low-value payment services. This paper compares payments arrangements in the UK, Norway, Sweden, and Finland, and discusses the impact of network effects on incentives to adopt new...

This study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North...

We examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships...