We estimate a multivariate early-warning model to assess the usefulness of private credit and other macro-financial variables in predicting banking sector vulnerabilities. Using data for 23 European countries, we find that global variables and in particular global credit growth are strong...

We study systemic illiquidity using a unique dataset on banks' daily cash flows, short-term interbank funding and liquid asset buffers. Failure to roll-over short-term funding or repay obligations when they fall due generates an externality in the form of systemic illiquidity. We simulate a...

This paper examines whether banks' liquidity and maturity mismatch decisions are affected by the choices of competitors and the impact of these coordinated funding liquidity policies on financial stability. Using a novel identification strategy where interactions are structured through decision...

In both the subprime crisis and the euro-area crisis, regulators imposed bans on short sales, aimed mainly at preventing stock price turbulence from destabilizing financial institutions. Contrary to the regulators' intentions, financial institutions whose stocks were banned experienced greater...

We quantify the gains from regulating maturity transformation in a model of banks which finance long-term assets with non-tradable debt. Banks choose the amount and maturity of their debt trading off investors' preference for short maturities with the risk of systemic crises. Pecuniary...

Procyclicality of collateral haircuts and margins has become a widely proclaimed behavior and is currently discussed not only by academic literature but also by regulatory authorities in Europe. Procyclicality of haircuts is assumed to be a trigger of liquidity spirals due to its tightening...

The crisis management framework for banks in the European Union (EU) requires the resolution authorities to identify the existence of a public interest to resolve an ailing bank, rather than to open normal insolvency proceedings (NIPs). The Public Interest Assessment (PIA) determines whether...

We analyze the optimality of macroprudential policies in an environment where the role of the banking sector is to efficiently allocate liquid assets across firms. Informational frictions in the banking sector can lead to an interbank market freeze. Firms react to the breakdown of the banking...

The declared intention of policy makers is that future bank restructuring should be conducted through bail-in rather than bail-out. Over the past years there have been a few cases of European banks being restructured where creditors were bailed in. This paper exploits these events to investigate...

I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high,...