shortage sell loans on the interbank market. Two equilibria emerge. In the no default equilibrium, all banks hold enough … reserves and remain solvent. In the mixed equilibrium, some banks default with positive probability. The former exists when …

assess and price the risk of default. In order to analyse default risk in the macroeconomy, a simple general equilibrium … model with banks and financial intermediation is constructed in which default-risk can be priced. It is shown how the credit … spread can be attributed largely to the risk of default and how excess loan creation may emerge due different attitudes to …

of default. We show that debt capacity depends on how information about the quality of the asset is revealed. When the … small default risk. Our model explains why markets for rollover debt, such as asset-backed commercial paper, may experience …

. This way, one bank's dividend payout policy affects the equity value and risk of default of other banks. When such negative …