Recent academic work and policy analysis give insight into the governance problems exposed by the financial crisis and suggest possible solutions. We begin this paper by explaining why governance of banks differs from governance of non-financial firms. We then look at four areas of governance:...

We explore the capital structure and governance of a mortgage-insuring securitization utility operating with government reinsurance for systemic or “tail” risk. The structure we propose for the replacement of the GSEs focuses on aligning incentives for appropriate pricing and transfer of...

In this paper, we test the hypothesis that granting employee stock options motivates CEOs of banking firms to undertake riskier projects. We also investigate whether granting employee stock options reduces the bank's incentive to borrow while inducing a buildup of regulatory capital. Using a...

This paper examines the relationship between the amount of information disclosed by bank holding companies (BHCs) and their subsequent risk profile and performance. Using data from the annual reports of BHCs with large trading operations, we construct an index of publicly disclosed information...

Although bank capital regulation permits a bank to choose freely between equity and subordinated debt to meet capital requirements, lenders and investors view debt and equity as imperfect substitutes. It follows that the mix of debt in regulatory capital should isolate the role that the market...

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 limits thrift goodwill that can be counted as regulatory capital. This paper examines if and why the goodwill clause adversely affected the market value of thrifts. Main findings are that good will had a large negative...

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...

This study analyzes differences by gender in the ownership of privately held U.S. firms and examines the role of gender in the availability of credit. Using data from the nationally representative Surveys of Small Business Finances, which span a period of sixteen years, we document a series of...

We document the propagation through supply chains of the most damaging cyberattack in history and the important role of banks in mitigating its impact. Customers of directly hit firms saw reductions in revenues, profitability, and trade credit relative to similar firms. The losses were larger...

Why does the market discipline that banks face seem too weak during good times and too strong during bad times? Using a global games approach in a general equilibrium setting, this paper shows that rollover risk as a disciplining device is effective only if all banks face purely idiosyncratic...