I propose and estimate a dynamic model of financial intermediation to study the different roles of the condition of banks' and firms' balance sheets in real activity. The net worth of firms determines their borrowing capacity both from households and banks. Banks provide risky loans to multiple...

We study the impact of changes in regulations and policy interventions on systemic risk among European sovereigns measured as volatility spillovers in respective credit risk markets. Our unique intraday CDS dataset allows for precise measurement of the effectiveness of these events in a network...

The build-up of risks in advanced economies has seen a lot of research efforts in the recent years, while similar research efforts on emerging economies have not been so strong and, when undertaken, have focused mostly on its international dimension. Simultaneously, the financial system of the...

In several recent studies unit root methods have been used in detection of financial bubbles in asset prices. The basic idea is that fundamental changes in the autocorrelation structure of relevant time series imply the presence of a rational price bubble. We provide cross-country evidence for...

The Basel III regulation explicitly prescribes the use of Hodrick-Prescott filters to estimate credit cycles and calibrate countercyclical capital buffers. However, the filter has been found to suffer from large ex-post revisions, raising concerns on its fitness for policy use. To investigate...

In the aftermath of the Great Financial Crisis, regulators have rushed to strengthen banking supervision and implement bank resolution regimes. While such resolution regimes are welcome to reintroduce market discipline and reduce the reliance on taxpayer-funded bailouts, the effects on the wider...

We build a moral hazard model to study incentives of financial intermediaries (shortly, bankers) facing a leverage-insurance trade-off in their investment choice. We demonstrate that the choice is affected by two recent transformations of the financial ecosystem bankers inhabit: (i) the rise of...

I propose a dynamic general equilibrium model in which strategic interactions between banks and depositors may lead to endogenous bank fragility and slow recovery from crises. When banks' investment decisions are not contractible, depositors form expectations about bank risk-taking and demand a...

Euro area governments have committed to break the doom loop between bank risk and sovereign risk. But policymakers have not reached consensus on whether and how to reform the regulatory treatment of banks' sovereign exposures. To inform policy discussions, this paper simulates portfolio...

We study determinants of sovereign portfolios of Spanish banks over a long time-span, starting in 2008. Our findings challenge the view that banks engaged in moral hazard strategies to exploit the regulatory treatment of sovereign exposures. In particular, we show that being a weakly capitalized...