Banks hold liquid and illiquid assets. An illiquid bank that receives a liquidity shock sells assets to liquid banks in exchange for cash. We characterize the constrained efficient allocation as the solution to a planner's problem and show that the market equilibrium is constrained inefficient,...

In the 1997 Asian Financial Crisis, South Korea, which had been one of the most successful economies in the world, was forced to raise interest rates and cut government spending by the IMF. These measures caused great economic distress. Because Asian countries are not well represented in the...

In this paper, we examine the empirical link between the structural characteristics of the financial system and financial crisis. We find that there is a significant short-term reversal in development of the banking sector and stock market during both bank crises and market crashes, with the...