This study provides a rigorous empirical comparison of structural and reduced-form credit risk frameworks. As major difference we focus on the discriminative modeling of default time. In contrast to previous literature, we calibrate both approaches to bond and equity prices. By using same input...

In this paper we will be estimating risk-neutral densities (RND) for the largest euro area stock market (the index of which is the German DAX), reporting their statistical properties, and evaluating their forecasting performance. We have applied an innovative test procedure to a new, rich, and...

We analyze what macroeconomic shocks affect the soundness of the German banking system and how this, in turn, feeds back into the macroeconomic environment. Recent turmoils on the international financial markets have shown very clearly that assessing the degree to which banks are vulnerable to...

Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant....

Recent developments on international financial markets have called the benefits of bank globalization into question. Large, internationally active banks have acquired substantial market power, and international activities have not necessarily made banks less risky. Yet, surprisingly little is...

This paper assesses the impact of a certain structure of interbank exposures on the stability of a stylized financial system. Given a certain balance sheet structure of financial institutions, a large number of valid matrices of interbank exposures is created by a random generator. Assuming a...

The extensive public support measures for the financial sector have been key for the management of the current financial crisis. This paper gives a detailed description of the measures taken by central banks and governments and attempts a preliminary assessment of the effectiveness of such...

Over the term of a securitization transaction, the concept of non-compliance allows a securitizing bank to classify a securitized loan as materially non-compliant with certain transaction requirements. Such a loan becomes unqualified for loss allocation. Therefore, non-compliant loans can...

Liquidity creation is one of banks’ raisons d’être. But what happens to liquidity creation and risk taking when a bank is identified as distressed by regulatory bodies and subjected to regulatory interventions and/or receives capital injections? What are the long-run effects of such...

We use a unique dataset of German banks’ exposure to interest rate risk to derive the following statements about their exposure to this risk and their earnings from term transformation. The systematic factor for the exposure to interest rate risk moves in sync with the shape of the term...