The harmonisation of fiscal and economic policy within the European Monetary Union (EMU) has had a considerable impact on the economies of member countries in the past decade. In particular, several studies indicate that the proceeding economic integration among euro area countries has important...

Taking the mean-variance portfolio model as a benchmark, we compute the optimally diversified portfolio for banks located in France, Germany, the U.K., and the U.S. under different assumptions about currency hedging. We compare these optimal portfolios to the actual cross-border assets of banks...

We study whether a pre-existing link between bank and sovereign credit risk biased euro area banks' sovereign debt portfolio choices during 2011Q4 and 2012Q1 - a period of exceptional increases in their domestic sovereign bond holdings. We find that banks whose creditworthiness is linked to that...

This paper investigates whether global investors are over or under exposed towards the euro area and the role of home bias and institutions at home in shaping this exposure. According to a simple benchmark from standard portfolio theory, euro area investors - in particular those from euro area...

Boom-bust cycles in real estate markets have been major factors in systemic financial crises and therefore need to be at the forefront of macroprudential policy. The geographically differentiated nature of real estate market fluctuations implies that these policies need to be granular across...

In this paper we construct model-free and model-based indicators for the inflation risk premium in the US and the euro area. We study the impact of market liquidity, surprises from inflation data releases, inflation volatility and deflation fears on the inflation risk premium. For our analysis,...

This paper uses panel econometric techniques to estimate a macro-financial model for fee and commission income over total assets for a broad sample of euro area banks. Using the estimated parameters, it conducts a scenario analysis projecting the fee and commission income ratio over a three...

This paper uses data on bilateral foreign exposures of domestic banking systems in order to construct early warning models for financial crises that take into account cross-country spill-overs of vulnerabilities. The empirical results show that incorporating cross-country financial linkages can...

This paper studies the impact of cyclical systemic risk on future bank profitability for a large representative panel of EU banks between 2005 and 2017. Using linear local projections we show that high current levels of cyclical systemic risk predict large drops in the average bank-level return...

Systemic risk in the banking sector is usually associated with long periods of economic downturn and very large social costs. On one hand, shocks coming from correlated exposures towards the real economy may induce correlation in banks' default probabilities thereby increasing the likelihood for...