There has emerged in the Western economies a strong nexus between the credit risks of financial sectors and their sovereigns. We argue that this phenomenon can be understood in the context of two debt overhang problems: one affecting the financial sector due to its under-capitalization following...

AbstractThe following sections are included:IntroductionThe Dodd–Frank Resolution Mechanism for Nonbank SIFIsThe US Repo MarketEvolution of the US Repo MarketRepo Market and the Crisis of 2007–2009A Case for Reforming the Repo MarketProposal for a Repo Resolution AuthorityA Historical...

What determines the sustainability of sovereign debt? We develop a model where myopic governments seek popularity but can nevertheless commit credibly to service external debt. They do not default when debt is low because they would lose access to debt markets and be forced to reduce spending;...