The mutual and cross company exposures to fat-tail distributed risks determine the potential impact of a financial crisis on banks and insurers. We examine the systemic interdependencies within and across the European banking and insurance sectors during times of stress by means of extreme value...

By employing Moody’s corporate default and rating transition data spanning the last 90years we explore how much capital banks should hold against their corporate loan portfolios to withstand historical stress scenarios. Specifically, we will focus on the worst case scenario over the...

We test the hypothesis that practicing enterprise risk management (ERM) reduces firms’ cost of reducing risk. Adoption of ERM represents a radical paradigm shift from the traditional method of managing risks individually to managing risks collectively allowing ERM-adopting firms to better...

This paper investigates the long-run recovery experience of US banks that received capital infusions under the Capital Purchase Program (CPP), a part of the Troubled Asset Relief Program (TARP). Based on a dynamic recovery model, our results show that recovering CPP banks tended to be in better...

We test the hypothesis that practicing enterprise risk management (ERM) reduces firms’ cost of reducing risk. Adoption of ERM represents a radical paradigm shift from the traditional method of managing risks individually to managing risks collectively allowing ERM-adopting firms to better...

Systemic banking crises have placed enormous pressure on national governments to intervene. The empirical literature, however, is inconclusive on what an optimal bailout program should look like to mitigate the negative consequences of government interventions in the banking sector. We find...

This paper presents a flexible, lattice-based structural credit risk model that uses equity market information and a detailed depiction of a financial institution’s liability structure to analyze default risk. The model is applied to examine the term structure of default probabilities for...

This paper estimates an early warning system (EWS) for predicting systemic banking crises in a sample of low income countries in Sub-Saharan Africa. Since the average duration of crises in this sample of countries is longer than one year, the predictive performance of standard binomial logit...

Bank payouts divert cash to shareholders, while leaving behind riskier and less liquid assets to repay debt holders in the future. Bank payouts, therefore, constitute a type of risk-shifting that benefits equity holders at the expense of debt holders. In this paper, we provide insights on how...

With the establishment of an integrated Banking Union, the harmonization of supervisory styles (regulation being equal) plays a central role. Our paper addresses a central question: what supervisory culture has been demonstrated to be most effective at ensuring the stability of European banks?...