We construct a new systemic risk measure that quantifies vulnerability to fire-sale spillovers using detailed regulatory balance sheet data for U.S. commercial banks and repo market data for broker-dealers. Even for moderate shocks in normal times, fire-sale externalities can be substantial. For...

In responding to the severity and broad scope of the financial crisis that began in 2007, the Federal Reserve has made aggressive use of both traditional monetary policy instruments and innovative tools in an effort to provide liquidity. In this paper, I examine the Fed’s actions in light of...

In the wake of the recent financial crisis, over-the-counter (OTC) derivatives have been blamed for increasing systemic risk. Although OTC derivatives were not a central cause of the crisis, the complexity and limited transparency of the market reinforced the potential for excessive risk-taking,...

We examine the properties of a method for fixing Libor rates that is based on transactions data and multi-day sampling windows. The use of a sampling window may mitigate problems caused by thin transaction volumes in unsecured wholesale term funding markets. Using two partial data sets of loan...

Interbank markets for term maturities experienced great stress during the 2007-09 financial crisis, as illustrated by the behavior of one- and three-month Libor. Despite widespread interest in these markets, little data are available on dollar interbank lending for maturities beyond overnight....

We employ a model of leverage-induced explosive behavior in financial markets to develop a measure of financial market instability. Specifically, we derive a quantitative condition for how large levered investors can become relative to the whole market before the demand curve for securities...

We propose two new jump-robust estimators of integrated variance based on highfrequency return observations. These MinRV and MedRV estimators provide an attractive alternative to the prevailing bipower and multipower variation measures. Specifically, the MedRV estimator has better theoretical...

The small decline in the value of mortgage-related assets relative to the large total losses associated with the financial crisis suggests the presence of financial amplification mechanisms, which allow relatively small shocks to propagate through the financial system. We review the literature...

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 nonfinancial firms. We then look at four areas of governance:...

We identify the tension created by the dual demands of financial institutions to be value-maximizing entities that also serve the public interest. We highlight the importance of information in addressing the public's desire for banks to be safe yet innovative. Regulators can choose several...