The global financial crisis of 2007–2008 has given rise to new regulatory initiatives to put restrictions on the size and the term of bankers' pay. We revisit both theoretically and empirically the question of whether these regulations are justified. We model bonuses as a series of sequential...

Failure in bank corporate governance has been seen as a contributing factor to excessive risk-taking pre-crisis with devastating implications as risks realised during the financial crisis. Unfortunately, the empirical evidence on the impact of managerial incentives on bank crisis performance is...

We model a banker's future bonuses as a series of call options on the bank's profits and show that bonus caps and deferrals reduce risk-taking. However, the banker's optimal risk-taking also depends on the costs of risk-taking. We calibrate the model to US banking data and show that lengthening...

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposures in the subprime crisis. The evidence suggests that short sellers sold short stocks that...

I propose a financial stress index (FSI) for the Finnish financial system that aims to reflect the functionality of the financial system and provide an aggregate measure of financial stress in the money, bond, equity and foreign exchange markets and the banking sector. The FSI is a composite...

We investigate the relationship between the daily average interbank overnight borrowing rate (AOR) and the credit default swap price (CDS) of 60 banks using the Eurosystem’s proprietary data from mid-2008 to mid-2013. We find that the AOR which is observable only by the competent Eurosystem...

This paper analyses the importance of individual bank-specific factors on financial stability. First, we use a novel method to model the spreading of the contagion in the interbank network by implementing an epidemiologic model. Actual data on European banks is exploited with simulated...

In this article we provide a summary of empirical results obtained in several economics and operations research papers that attempt to explain, predict, or suggest remedies for financial crises or banking defaults, as well as outlines of the methodologies used. We analyze financial and economic...

Building on the work of Sorge and Virolainen (2006), we revisit the data on aggregate Finnish bank loan losses from the corporate sector, which covers the ‘Big Five’ crisis in Finland in the early 1990s. Several extensions to the empirical model are considered. These extensions are then used...

The current financial crisis, which has lasted almost one and a half years, is the 19th such crisis in the post-war period in advanced economies. Recent literature classifies the Nordic crises in Norway, Sweden and Finland in late 1980's and early 1990’s among the Big Five crises that have...