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In standard Walrasian macro-finance models, pecuniary externalities such as fire sales lead to overinvestment in illiquid assets or underprovision of liquidity. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far...
Persistent link: https://www.econbiz.de/10011806238
We summarize and evaluate Fannie Mae and Freddie Mac's credit risk transfer (CRT) programs, which have been used since 2013 to shift a portion of credit risk on more than $1.8 trillion of mortgages to private sector investors. We argue that the CRT programs have been successful in reducing the...
Persistent link: https://www.econbiz.de/10011806244
Several countries now require banks or money market funds to impose state-contingent costs on shortterm creditors to absorb financial stress. We study these requirements as part of the broader prudential toolkit in a model with five key ingredients: banks may face an aggregate stress state with...
Persistent link: https://www.econbiz.de/10015329942
We propose a credit portfolio approach for evaluating systemic risk and attributing it across institutions. We construct a model that can be estimated from high-frequency CDS data. This captures risks from publicly traded banks, privately held institutions, and coöperative banks, extending...
Persistent link: https://www.econbiz.de/10014280065
We propose a credit portfolio approach for evaluating systemic risk and attributing it across institutions. We construct a model that can be estimated from high-frequency CDS data. This captures risks from privately held institutions and cooperative banks, extending approaches that rely on...
Persistent link: https://www.econbiz.de/10013202709
Procyclicality of collateral haircuts and margins has become a widely proclaimed behavior and is currently discussed not only by academic literature but also by regulatory authorities in Europe. Procyclicality of haircuts is assumed to be a trigger of liquidity spirals due to its tightening...
Persistent link: https://www.econbiz.de/10011975294
This paper discusses liquidity regulation when short-term funding enables credit growth but generates negative systemic risk externalities. It focuses on the relativemerit of price versus quantity rules, showing how they target different incentives for risk creation.When banks differ in credit...
Persistent link: https://www.econbiz.de/10011383222
connectivity may destabilize the financial system via the bank-run channel. This is because it decreases the risk-sharing benefits … of interbank connectivity. A bank-run model features two islands that are connected via a long term debt claim. Varying … the size of this claim (interbank connectivity), I study how the decision to 'run on the bank' is affected. I run a …
Persistent link: https://www.econbiz.de/10013350529
By providing liquidity to depositors and credit line borrowers, banks are exposed to doubleruns on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs....
Persistent link: https://www.econbiz.de/10011974718
Persistent link: https://www.econbiz.de/10012137736