", is driven by government choice to bail out banks and the resulting incentives for banks to hold government debt rather … loop" is a Nash Equilibrium of the interaction between banks and the government. When equity is issued, no diabolic loop … exists. In equilibrium, banks' rational expectations of a bailout ensure that no equity is issued and the sovereign-bank loop …

The paper studies the central bank collateral framework and its impact on banks' liquidity under an adverse stress test … marketable and non-marketable assets. In particular, the model analyses banks' strategic decisions to mobilise assets through …

banks to have private information about the risk of their assets. We show how banks’ asset risk affects funding liquidity in … of unsecured rates and excess reserves banks hold, as well as the inability of massive liquidity injections by central … banks to restore interbank activity). We use the model to discuss various policy responses. …

found that marginal rates at central bank auctions may increase if the share of troubled banks becomes too high relative to …

equilibrium is characterized by a deep market with highly leveraged banks. The crisis times equilibrium is characterized by bank …

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using … bank-firm level credit data, we show that banks reallocate credit within their loan portfolio in at least three different … ways. First, banks reallocate to sectors where they have a high market share. Second, they also reallocate to sectors in …

banking groups. On this basis, the bail-in of a bank can be simulated to identify the direct contagion risk to the other banks … in the network. We find that there is no direct contagion to creditor banks. Spill-overs also tend to be small due to low …