A topical concern in public-policy debate is that the current capital adequacy regulation designed for stand-alone financial institutions exhibits several weaknesses due to the emergence of large financial institutions combining several activities under common control. This paper addresses these...

We investigate how European banks' overnight borrowing costs depend on bank size. We use the Eurosystem's proprietary interbank daily loan data on euro-denominated transactions from 2008-2014. We find that large banks have had a clear borrowing cost advantage over small banks and that this...

This theoretical paper explores the effects of costly and non-costly collateral on moral hazard, when collateral value may fluctuate. Given that all collateral is costly, stochastic collateral will entail the same positive incentive effects as nonstochastic collateral, provided the variation in...

The emergence of financial conglomerates and multinational financial institutions as well as the development of new financial products have raised concerns as to the ability of separate sectoral supervisors and different national authorities to effectively oversee financial markets....

This paper examines blanket guarantee and restructuring decisions in respect of a multinational bank (MNB) using Nash bargaining, when the threat of a panic motivates countries to take decisions quickly. The failure of the bank would cause unevenly distributed externalities between the countries...

Sufficient solvency of a pension insurance company responsible for defined-benefit pensions guarantees that the pensions are paid regardless of turbulence in the financial market. In the Finnish occupational pension system TyEL, the required level of solvency capital (solvency limit) and its...

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 this paper, I develop a model that addresses the links between banks' liquidity outlook and their incentives to take credit risk. Assuming that both bank-specific liquidity shocks and credit losses are necessary to provoke bank runs, the model predicts that a bank's incentives to mitigate its...

We suggest a complementary tool for financial stability analysis based on stochastic simulation of a dynamic stochastic general equilibrium model (DSGE) of the macro economy. The paper relates to financial stability research in which financial aggregates crucial to financial stability are...

In this paper, we investigate the relationship between the transparency of banks and the fragility of the banking system. We show that information-based bank runs may be inefficient because the deposit contract designed to provide liquidity induces depositors to have excessive incentives to...