Using a synthetic control research design, we find that “living will” regulation increases a bank's annual cost of capital by 22 basis points, or 10 percent of total funding costs. This effect is stronger in banks that were measured as systemically important before the regulation's...

We identify and track over time the factors that make the financial system vulnerable to fire sales by constructing an index of aggregate vulnerability. The index starts increasing quickly in 2004, before most other major systemic risk measures, and triples by 2008. The fire-sale-specific...

Many large U.S. bank holding companies (BHCs) continued to pay dividends during the recent financial crisis, even as financial market conditions deteriorated, large losses accumulated, and emergency capital and liquidity were being provided by the official sector. In contrast, share repurchases...

Should policy makers be prevented from bailing out investors in the event of a crisis? I study this question in a model of financial intermediation with limited commitment. When a crisis occurs, the efficient policy response is to use public resources to augment the private consumption of those...

We show analytically that whether incomplete markets resolve New Keynesian “paradoxes” depends primarily on the cyclicality of income risk, rather than marginal propensity to consume (MPC) heterogeneity. Incomplete markets reduce the effectiveness of forward guidance and multipliers in a...

Monitoring is one of the main activities explaining the existence of banks, yet empirical evidence about its effect on loan outcomes is scant. Using granular loan-level information from the Italian Credit Register, we build a novel measure of bank monitoring based on banks’ requests for...

In the conduct of monetary policy, there exists a risk-return trade-off between financial conditions and financial stability, which complements monetary policy's traditional trade-off between inflation and real activity. The trade-off exists even if monetary policy does not target financial...

We develop a theory of financial intermediary leverage cycles in the context of a dynamic model of the macroeconomy. The interaction between a production sector, a financial intermediation sector, and a household sector gives rise to amplification of fundamental shocks that affect real economic...

Shadow banks conduct credit intermediation without direct, explicit access to public sources of liquidity and credit guarantees. Shadow banks contributed to the credit boom in the early 2000s and collapsed during the financial crisis of 2007-09. We review the rapidly growing literature on shadow...

While the Dodd-Frank Act (DFA) broadens the regulatory reach to reduce systemic risks to the U.S. financial system, it does not address some important risks that could migrate to or emanate from entities outside the federal safety net. At the same time, it limits the types of interventions by...