Using a unique dataset of the Euro area and the U.S. bank lending standards, we find that low (monetary policy) short-term interest rates soften standards, for household and corporate loans. This softening – especially for mortgages – is amplified by securitization activity, weak supervision...

Why should monetary policy "lean against the wind"? Can’t bank regulation perform its task alone? We model banks that choose both asset volatility and leverage, and identify how monetary policy transmits to bank risk. Subsequently, we introduce a regulator whose tool is a risk-based capital...

The Euro area economic activity and banking sector have shown substantial fragility over the last years with remarkable country heterogeneity. Using detailed data on lending conditions and standards, we analyse how financial fragility has affected the transmission mechanism of the single Euro...

We analyze the impact on lending standards of short-term interest rates and macroprudential policy before the 2008 crisis, and of the provision of central bank liquidity during the crisis. Exploiting the euro area institutional setting for monetary and prudential policy and using the Bank...

This paper assesses the usefulness of private credit variables and other macrofinancial and banking sector indicators for the setting of Basel III / CRD IV countercyclical capital buffers (CCBs) in a multivariate early warning model framework, using data for 23 EU Members States from 1982 Q2 to...

I study rollover risk in the wholesale funding market when intermediaries can hold liquidity ex-ante and are subject to fire sales ex-post. I demonstrate that precautionary liquidity restores multiple equilibria in a global rollover game. An intermediate liquidity level supports both the usual...

I develop a model of money market funds (MMFs) to study the ability of sponsor support to provide stability to the industry. I find that strategic complementarities in the sponsors’ support decisions can make MMFs vulnerable to runs different from the canonical bank-runs: it may lead to runs...

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...

I study economies where banks do not fully internalize the social costs of default, which distorts their lending decisions. In all these economies, a common general equilibrium effect leads to aggregate over-investment. As a result, under laissez-faire, crises are too frequent and too costly...

This paper presents time-varying contagion indices of credit risk spillover and feedback between 64 financials and sovereigns in the euro area, where spillover is identified based on bilateral Granger causality regressions. Over-identification of contagion between financials’ true credit risk...