If regulation fails to differentiate between priced and idiosyncratic risk, it incentivizes investors to reach for … conditionally on rating-implied regulatory risk weights. ABS investments of constrained banks tend to perform worse ex post in terms …

stressed expected loss (SEL). We simulate a market downturn as a negative shock on interest rate and credit market risk factors …

lead to real reductions in risk as its benefits are limited to “good” times. Diversified banks are more exposed to … systematic risk and their credit supply is more sensitive to macroeconomic conditions, and monetary policy changes. Our study …

systemic runs for large shocks, but provide insurance against rollover risk for moderate shocks. Insurance operates via loan …, novation and default fund reduce the risk of systemic runs. Collateral aligns private incentives with the socially optimal …

. Other systemically important institutions bear more individual market risk. The two groups and the global financial system …

risk. In this model, banks face taxation, flotation costs of securities, and default costs and maximize shareholder value …

We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of financial frictions that … make external financing costly, the optimal contract between shareholders and employees involves some degree of risk … to rationalize exclusively with incentive theories of bonus pay---but support an important risk sharing motive …