Banks are intrinsically fragile because of their role as liquidity providers. This results in under-provision of liquidity. We analyze the e¤ect of government guarantees on the interconnection between banks' liquidity creation and likelihood of runs in a model of global games, where banks.and...

Loan guarantees represent a form of government intervention to support bank lending. However, their use raises concerns as to their effect on bank risk-taking incentives. In a model of •nancial fragility that incorporates bank capital and a bank incentive problem, we show that loan guarantees...

Loan guarantees represent a form of government intervention to support bank lending. However, their use raises concerns as to their effect on bank risk-taking incentives. In a model of financial fragility that incorporates bank capital and a bank incentive problem, we show that loan guarantees...

We develop a simple model of the interbank market where banks trade a long term, safe asset. We show that when there is a lack of opportunities for banks to hedge aggregate and idiosyncratic liquidity shocks, the interbank market is characterized by excessive price volatility. In such a...

Through a review of the literature, this chapter describes observed forms of alternative finance around the world, as well as their roles. It also uses World Bank Survey Data to empirically compare alternative finance development across countries. We find that alternative finance is essential...

Bank market power, both in the loan and deposit market, has important implications for credit provision and for financial stability. This article discusses these issues through the lens of a simple theoretical framework. On the asset side, banks choose the quality and quantity of loans. On the...