We present a tractable framework to assess the systemic implications of bail-in. To this end, we construct a multi-layered network model where each layer represents the securities cross holdings of a specific seniority among the largest euro area banking groups. On this basis, the bail-in of a...

We provide a simple and tractable accounting-based stress-testing framework to assess loss dynamics in the banking sector, in a context of leverage targeting. Contagion can occur through direct interbank exposures, and indirect exposures due to overlapping portfolios with the associated price...

In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about...

To what extent can private firms' external equity substitute for debt financing in a banking crisis? To answer this question, I use firm-level data and firm-bank linkages to estimate the causal effect of an imported lending cut from a large German bank on firms' capital structure and real...

This paper studies the effects of government guarantees on the interconnection between banking and sovereign debt crises in a framework where both the banks and the government are fragile and the credibility and feasibility of the guarantees are determined endogenously. The analysis delivers...

The assets under management of investment funds have soared in recent years, triggering a debate on their possible implications for financial stability. We contribute to this debate assessing the asset price impact of fire sales in a novel partial equilibrium model of euro area funds and banks...

Financial losses can have persistent effects on the financial sy stem. This paper proposes an empirical measure for the duration of these effects, S pillover P ersistence. I d ocument that Spillover Persistence is strongly correlated with financial c onditions; d uring b anking crises, Spillover...

What is the effect of Central Bank Digital Currency (CBDC) on financial stability? We answer this question by studying a model of financial intermediation with an endogenously determined probability of a bank run, using global games. As an alternative to bank deposits, consumers can also store...

This paper documents the extension of the system-wide stress testing framework of the ECB with the insurance sector for a more thorough assessment of risks to financial stability. The special nature of insurers is captured by the modelling of the liability side and its loss absorbing capacity of...

This paper develops a general equilibrium model to analyze the link between financial imbalances and financial crises. The model features an interbank market subject to frictions and where two equilibria may (co-)exist. The normal times equilibrium is characterized by a deep market with highly...