How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt...

We develop an operational model of information contagion and show how it may be integrated into a mainstream, top-down, stress-testing framework to quantify systemic risk. The key transmission mechanism is a two-way interaction between the beliefs of secondary market investors and the...

Why do politicians sometimes pursue policies with uncertain outcomes? We present a model in which politicians are unable to pre-commit to a status quo policy, and where investors and voters face a conflict over the division of output. Politicians may deviate from the status quo and pursue risky...

We offer an analytical framework for studying "pre-emptive" debt exchanges. Countries can tailor a sovereign bankruptcy framework by choosing provisions (or "haircuts") ex ante, but must contend with the market discipline of holdout litigation ex post. Secondary markets play a role in shaping...

Cyber attacks can impair banks operations and precipitate bank runs. When digital infrastructure is shared, banks defend themselves by investing in cybersecurity but can free-ride on the security measures of others. Ex ante free-riding by banks interacts with the ex post coordination frictions...