The Bank of England, the Federal Reserve (Fed) and the European Central Bank (ECB) have responded to the crisis with exceptional initiatives resulting in a major increase in their balance sheets. After the ECB's end-2011 launch of three-year bank refinancing (LTRO), there has been speculation...

Stress in the interbank market has increased dramatically since July and bank stock market valuation has fallen by 22 percent on average for 60 of the most important banks tested in the EBA stress tests. I find evidence that bank stock valuation is significantly and economically meaningfully...