This article examines the conditions under which a credit crunch becomes a credit crisis by studying one aspect of the current financial crisis: the month-long turmoil in the interbank loan market. The credit crunch began in 2007 but became a crisis when the bankruptcy of Lehman Brothers on...

The majority of commentators, along with the public opinion, are inclined to identify the causes of the last financial crisis in a combination of traditional market and regulatory failures in the operation and regulation of financial markets. Whatever cannot be explained along these lines is...

Financial regulation today is largely framed by traditional business categories. The financial markets, however, have begun to bypass those categories, principally over the last thirty years. Chief among the changes has been convergence in the products and services offered by traditional...

This study empirically analyzes the historical performance of defaulted debt from Moody’s Ultimate Recovery Database (1987-2010). Motivated by a stylized structural model of credit risk with systematic recovery risk, we argue and find evidence that returns on defaulted debt co-vary with...

This paper assumes a structural credit model with underlying stochastic volatility combining the Black/Cox approach with the Heston model. We model the equity of a company as a barrier call option on its assets. The assets are assumed to follow a stochastic volatility process; this implies an...

The relationship between personal and firm bankruptcy is intuitively understood but has not been previously studied. When a person files a bankruptcy petition they reduce their spending on goods and services sold by companies. Similarly, when a firm files for bankruptcy some employees lose their...

The labor studies literature has for many years accepted the labor hoarding theory. That theory derives from seminal work by Oi (1962), Solow (1964), Miller (1971), and Fair (1985). Those studies argue that as a result of the absolute cost of hiring and training certain workers that even when...

Reputation risk is becoming a serious concern for financial services firms, yet is poorly understood and not well-managed. This article develops a five-step process to enable firms to integrate reputation risk management into their enterprise risk management structures. Firms should set a...

In this study we develop a theoretical model for ultimate loss-given default in the Merton (1974) structural credit risk model framework, deriving compound option formulae to model differential seniority of instruments, and incorporating an optimal foreclosure threshold. We consider an extension...

The stunning failure of a number of banks during the recent crisis has put regulatory intervention high on the agenda of governments. Adequate risk monitoring, including by credit rating agencies, measurement, and management have proven to be a daunting task, whereas regulation of innovative...