prices that banks pay for liquidity, captured here by borrowing rates in repos with the central bank and benchmarked by the … overnight index swap. We have price data at the individual bank level and, unique to this paper, data on individual banks … liquidity. We find that the price a bank pays for liquidity depends on the liquidity positions of other banks, as well as its …

The paper establishes that sovereigns, like banks, need a lender of last resort (LoLR). In the euro area the ECB, with … purchase periphery sovereign debt in the primary issue markets. The other half has been financial repression requiring banks in …, through loans by the national central banks to the IMF which on-lends them to these sovereigns. We recommend that, to increase …

The long-run price elasticity of demand for credit is a key parameter for intertemporal modeling, policy levers, and … number of borrowers is also elastic. Credit bureau data does not show evidence of crowd-out. Competitors do not respond by …

Repo auctions are multiunit auctions regularly used by central banks to inject liquidity into the banking sector. Banks …. Using a bidder level dataset of the European Central Bank’s main repo auctions, however, we find evidence that the economic …

requirements in the context of a dynamic equilibrium model of relationship lending in which banks are unable to access the equity … markets every period. Banks anticipate that shocks to their earnings as well as the cyclical position of the economy can … are insufficient to prevent a significant contraction in the supply of credit at the arrival of a recession. We show that …

that low-risk firms will achieve reductions in their loan rates by borrowing from banks adopting the IRB approach, while … high-risk firms will avoid increases in their loan rates by borrowing from banks that adopt the less risk … against credit losses, and we propose a margin income correction for IRB capital requirements. …

A large theoretical literature shows that competition reduces banks' franchise values and induces them to take more … risk. Recent research contradicts this result: When banks charge lower rates, their borrowers have an incentive to choose … rates also reduce the banks' revenues from non-defaulting loans. This paper shows that when this effect is taken into …

leveraged banks’ precautionary demand for liquidity. When adverse asset shocks materialize, a bank’s ability to roll over debt … is impaired because of agency problems associated with high leverage. In turn, a bank’s propensity to hoard liquidity is …, even for banks with profitable lending opportunities. In extremis, there can be a complete freeze in inter-bank markets. …

Two aspects of systemic risk, the risk that banks fail together, are modeled and their interaction examined. First, the … which banks endogenously hold correlated portfolios increasing the likelihood of joint failure. When bank loan returns have … cost of borrowing for the surviving banks. Such information contagion is thus costly to bank owners. Given their limited …

Systemic risk is modeled as the endogenously chosen correlation of returns on assets held by banks. The limited … liability of banks and the presence of a negative externality of one bank’s failure on the health of other banks give rise to a … systemic risk-shifting incentive where all banks undertake correlated investments, thereby increasing economy-wide aggregate …