This paper assess the affects of the orderly liquidation of a failing bank and the ex post provision of deposit insurance on the prospect of bank runs. Assuming that the public institutions in charge of these policies lack commitment power, these interventions, both individually and jointly, are...

This paper examines what transformed a significant, but relatively mild, financial disruption into a full-fledged financial crisis. It discusses why, although the Lehman Brothers bankruptcy was a key trigger for the global financial crisis, three other events were at least as important: the AIG...

This chapter describes a system, called the LEADS system, for providing market participants, regulators, and households with information on the reallocation of resources within, from, and to the household sector in response to macroeconomic events. The household sector is both a propagator of...

Heightened counterparty risk during the recent financial crisis has raised questions about the role clearinghouses play in global financial stability. Empirical identification of the effect of centralized clearing on counterparty risk is challenging because of the co-incidence of macro-economic...

We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in...

This paper examines the effects of the Reconstruction Finance Corporation's (RFC) loan and preferred stock programs on bank failure rates in Michigan during the period 1932-1934, which includes the important Michigan banking crisis of early 1933 and its aftermath. Using a new database on...

The near-failure on September 16, 2008, of American International Group (AIG) was an iconic moment in the financial crisis. Two large bets on real estate made with funding that was vulnerable to bank-run like behavior on the part of funders pushed AIG to the brink of bankruptcy. AIG used...

I describe two amplifications mechanisms that operate during liquidity crises and discuss the scope for central bank policies during crises as well as preventive policies in advance of crises. The first mechanism works through asset prices and balance sheets. A negative shock to the balance...

We develop a general equilibrium model of government policy choice in which stock prices respond to political news. The model implies that political uncertainty commands a risk premium whose magnitude is larger in weaker economic conditions. Political uncertainty reduces the value of the...

We evaluate the effect of the Federal Reserve's purchase of long-term Treasuries and other long-term bonds ("QE1" in 2008-2009 and "QE2" in 2010-2011) on interest rates. Using an event-study methodology we reach two main conclusions. First, it is inappropriate to focus only on Treasury rates as...