We analyze the problem of a policy authority (PA) that must decide when to resolve a troubled bank whose underlying solvency is uncertain. Delaying resolution increases the chance that information arrives that reveals the bank's true solvency state. However, delaying resolution also gives...

A bank's decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank's future costs of external finance and future vulnerability to bankruptcy risks. We study these...

The game-theoretical analysis of this paper shows that stress tests that cover the entire banking sector (macro stress tests) can be performed by institutional supervisors to improve welfare. In a multi-receiver framework of Bayesian persuasion we show that a banking authority can create value...

Increases in firm default risk raise the default probability of banks while decreasing output and inflation in US data. To rationalize the empirical evidence, we analyse firm risk shocks in a New Keynesian model where entrepreneurs and banks engage in a loan contract and both are subject to...

Several countries have recently introduced national capital standards exceeding the internationally coordinated Basel III rules, which is inconsistent with the 'race to the bottom' in capital standards found in the literature. We study regulatory competition when banks are heterogeneous and give...

In attempting to promote bank stability, the Basel Committee on Banking Supervision (2006) provides a framework that seeks to control the amount of tail risk that large banks take in their trading books. However, banks around the world suffered sizeable trading losses during the recent crisis....

After the collapse of Lehman Brothers, a rapid and far-reaching shrinkage of international banks’ assets with a focus on foreign claims took place. For the largest 67 German banking groups, we find that both their characteristics and behavior in the pre-crisis episode had repercussions for the...

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...