Using a newly-constructed data set on Israeli Initial Public Offering (IPO) firms in the 1990s, we study costs and benefits of universal banking. We find that a firm whose equity was underwritten by a bank-affiliated underwriter, when the same bank was also a large creditor of the firm in the...

This paper examines the implications of bank activity and short-term funding strategies for bank risk and return using an international sample of 1334 banks in 101 countries leading up to the 2007 financial crisis. Expansion into non-interest income generating activities such as trading...

We analyze the impact of financial crises and monetary policy on the supply of wholesale funding liquidity, and also on the compositional supply effects through cross-border and relationship lending. For empirical identification, we draw on the proprietary bank-to-bank European interbank dataset...

I propose a simple theory of intertwined business and financial cycles, where financial regulation both optimally responds to and influences the cycles. In this model, banks do not internalize the effect of their credit expansion on other banks’ expected bankruptcy costs, which leads to...

Following the financial crisis of 2008/9, there has been renewed interest in what Greenwald and Stiglitz dubbed ‘pecuniary externalities’. Two that affect borrowers and lenders balance sheets in pro-cyclical fashion are described, along with measures that might help curb their destabilising...

This paper shows that the sovereign debt crisis and the resulting credit crunch in the periphery of the Eurozone lead to negative real effects for borrowing firms. Using a hand matched sample of loan information from Dealscan and accounting information from Amadeus, we show that firms with a...

We present a simple model of an economy with heterogeneous banks that may be funded with uninsured deposits and equity capital. Capital serves to ameliorate a moral hazard problem in the choice of risk. There is a fixed aggregate supply of bank capital, so the cost of capital is endogenous. A...

We develop and calibrate a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period and the business cycle is a Markov process that determines loans' probabilities of default. Banks anticipate that shocks to their earnings and the...

We analyze banks' systemic risk taking in a simple dynamic general equilibrium model. Banks collect funds from savers and make loans to firms. Banks are owned by risk-neutral bankers who provide the equity needed to comply with capital requirements. Bankers decide their (unobservable) exposure...

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial crisis. The difference in costs of out-of-the-money put...