We estimate the structural parameters of a quantitative banking model featuring maturity transformation and endogenous failures in the presence of undiversifiable background risk and regulatory constraints. Pervasive balance sheet cross-sectional heterogeneity can be rationalized with...

This article considers prudential liquidity regulation as quid pro quo for emergency liquidity assistance by the central bank. In the presence of bank funding constraints, information-induced bank runs and an objective by the central bank to maintain a balanced budget under its lender of last...

Using an intertemporal model of asset pricing under asymmetric information, we demonstrate how public ratings about the quality of a risky asset could enhance information efficiency, albeit at a cost of higher asset price volatility. The analysis also draws implications for the use of ratings...

This article discusses the out-of-court debt restructuring of firms in financial distress, under conditions of asymmetric information among their creditors and in situations where a creditor bank makes concessions conditional on other creditors' actions. In line with empirical evidence, it is...

Noise traders benchmark the supply of a traded asset to public announcements. This paper shows how benchmarking induces informed traders to overreact to news about fundamentals, leading to excess asset price volatility

Using an intertemporal model of asset pricing under asymmetric information, we demonstrate how public ratings about the quality of a risky asset could enhance information efficiency, albeit at a cost of higher asset price volatility. The analysis also draws implications for the use of ratings...

This article discusses the out-of-court restructuring of the contractual obligations of a financially distressed firm, under conditions of asymmetric information among the firm’s creditors and in situations where a creditor bank makes concessions conditional on other creditors’ actions. I...

We find evidence that banks target return on equity (RoE) and make active use of leverage to affect the speed of adjustment towards RoE targets. That holds for both the pre- and post-2007 periods and especially for banks that tend to operate with above median leverage among their peer group. As...

I develop a heterogenous agent life-cycle model that examines the effects of the US personal bankruptcy law on bankruptcy filings and welfare. In addition to facing uncertainty over their labor income, agents also face wealth shocks that stem from unexpected changes in family composition or from...