We perform transaction-level analyses of entrusted loans—one of the largest components of shadow banking in China. Entrusted loans involve firms with privileged access to cheap capital channeling funds to less privileged firms, and increase when credit is tight. Nonaffiliated loans have much...

Interconnectedness has been an important source of market failures, leading to the recent financial crisis. Large financial institutions tend to have similar exposures and thus exert externalities on each other through various mechanisms. Regulators have responded by putting more regulations in...

The financial crisis has generated fundamental reforms in the financial regulatory system in the U.S. and internationally. Much of this reform was in direct response to the weaknesses revealed in the precrisis system. The new “macroprudential” approach to financial regulations focuses on...

Before the crisis, bank regulation relied to a large extent on capital regulation. Liquidity regulation was not widely used. The liquidity problems during the crisis led to calls for liquidity regulation. As a result, the Basel III accord introduced global liquidity standards. An important issue...

We examine the international transmission of liquidity and capital shocks from multinational bank-holding companies to their subsidiaries. Our findings are consistent with the studies that document the negative impact of parent bank fragility on subsidiaries' lending. We further find that...

We develop a model in which asset commonality and short-term debt of banks interact to generate excessive systemic risk. Banks swap assets to diversify their individual risk. Two asset structures arise. In a clustered structure, groups of banks hold common asset portfolios and default together....