We develop a stylized DSGE model in which banks face capital regulation and their loan portfolios are subject to non-diversifiable losses due to aggregate shocks. The framework is used to explore the importance of the interaction between macroeconomic conditions, credit default and bank...

We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of a...

This paper models the strategic interaction between a rating agency, a bank and a bank regulator who lacks information about bank asset risk. The regulator can either (1) make bank capital requirements contingent on credit ratings; or (2) set rating-independent capital requirements. Truthful...

Several countries have recently introduced national capital standards exceeding the internationally coordinated Basel III rules, thus suggesting a ‘race to the top' in capital standards. We study regulatory competition when banks are heterogeneous and give loans to firms that produce output in...

When firms borrow in foreign currency but collect revenues in local currency, exchange rate changes can affect their ability to repay their debt. Using loan-level data from U.S. banks' regulatory filings, this paper studies the effect of exchange rate changes on firms' loan payments. A 10...

We study the efficiency of banking regulation under financial integration. Banks freely choose the jurisdiction where to locate their activities and have private information about their efficiency level. Regulators non-cooperatively offer any regulatory contract that satisfies information and...

We examine the impact of various dimensions of financial reform on the likelihood of systemic and non-systemic banking crises. Using new financial reform measures for a large sample of developing and developed countries for the period 1973 to 2002, our multivariate probit modeling results...

The current financial crisis has sparked intense debate about how weak banks should be resolved. Despite international efforts to coordinate and converge on such policies, national policy advice and resolution practices differ. The resolution methods adopted in the Nordic banking crises in the...

This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank, and that their sovereign partially backs up any...