Conventional economic policy models focus only on selected elements of the central bank balance sheet, in particular monetary liabilities and sometimes foreign reserves. The canonical model of an "independent" central bank assumes that it chooses money (or an interest rate) unconstrained by a...

This paper analyzes the determinants of bank acquisitions both within and across 25 members of the European Union (EU-25) during the period 1997–2004. Our results suggest that poorly managed banks (those with a high cost-to-income ratio) and larger banks are more likely to be acquired by other...

A country's financial system is internationally illiquid if its potential short-term obligations in foreign currency exceed the amount of foreign currency it can have access to in short notice. This condition may be necessary and sufficient for financial crises and/or exchange rate collapses...

We present a simple model that can account for the main features of recent financial crises in emerging markets. The international illiquidity of the domestic financial system is at the center of the problem. Illiquid banks are a necessary and a sufficient condition for financial crises to...

The debate over modernizing the financial structure is raising questions about the merits of modernizing the financial regulatory structure. Regulatory structure is important because an almost unavoidable feature of our current system of government is that Congress assigns multiple goals that...

We study financial fragility, exchange rate crises, and monetary policy in an open economy version of a Diamond-Dybvig model. The banking system, the exchange rate regime, and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare; if the mechanism fails,...

Arguably, eliminating suspensions of payments--periods when banks jointly refuse to convert their liabilities into outside money or other assets--was an important impetus for creating the Federal Reserve. Friedman and Schwartz suggest that a suspension in 1930 would have decreased the severity...

Recently there have been a number of recommendations to increase the role of subordinated debt (SND) in satisfying bank capital requirements as a preferred means to discipline the risk-taking behavior of systemically important banks. One such proposal recommended using SND yield spreads as the...