The regulatory use of banks' internal models makes capital requirements more risk-sensitive but invites regulatory arbitrage. I develop a framework to study bank regulation with strategic selection of risk models. A bank supervisor can discourage arbitrage by auditing risk models, and implements...

This paper develops an analytical framework that can be used to anticipate problems in the banking system and enable supervisors to take mitigating actions at an early stage. This paper has two components. First, it develops an early warning indicator that is intended to capture a number of the...

This paper describes concepts and tools behind macroprudential monitoring, and the growing importance of macroprudential tools for assessing the stability of financial systems. This paper also employs a macroprudential approach in examining financial soundness and identifying its determinants....

This paper describes concepts and tools behind macroprudential monitoring and the growing importance of macroprudential tools for assessing the stability of financial systems. This paper also employs a macroprudential approach in examining financial soundness and identifying its determinants....

Switching costs are a recognised issue in banking markets around the world, but in many countries, including New Zealand, regulators give them limited attention. This paper confirms the existence and relative importance of switching costs in the New Zealand banking market. We find seven...

Regulation needs effective supervision; but regulated entities may deviate with unobserved actions. For identification, we analyze banks, exploiting ECB's asset-quality-review (AQR) and supervisory security and credit registers. After AQR announcement, reviewed banks reduce riskier securities...

We empirically examine the quality of accounting information that authorities utilise when conducting bank stress tests and provide evidence on how this information links to the outcome of these tests. Based on a unique dataset of tested and non-tested banks from 27 European countries, we...

We examine the Indian bank asset quality review, which doubled the declared loan delinquency rate. Relative economic stability during the exercise and the absence of a capital backstop together make it unique. We find that the expected reduction in information asymmetry does not automatically...

Leading up to the implementation of Basel III, European banks needed to substantially increase their capital ratios. To do this, banks made use of Liability Management Exercises (LMEs) in which they repurchased below-par debt securities. Banks are subject to a prudential filter that excludes...

In the aftermath of the financial crisis, governments are rightly reducing their exposure to the banking system. Bail-in arrangements should ensure that shareholders and creditors take the first losses. The next line of defence is a resolution fund, which is filled via levies on banks....