In this paper we study systemic risk for the US and Europe. We show that banks' exposures to common risk factors are crucial for systemic risk. We come to this conclusion by first showing that relations between US and European banks are smaller than within each region. We then show that European...

Has economic research been helpful in dealing with the financial crises of the early 2000s? On the whole, the answer is negative, although there are bright spots. Economists have largely failed to predict both crises, largely because most of them were not analytically equipped to understand...

With the Great Recession and the regulatory reform that followed, the search for reliable means to capture systemic risk and to detect macrofinancial problems has become a central concern. In the United States, this concern has been institutionalized through the Financial Stability Oversight...

This paper is concerned with the allegation that fair value accounting rules have contributed significantly to the recent financial crisis. It focuses on one particular channel for that contribution: the impact of fair value on actual or potential failure of banks. The paper compares four...

Washington's remedy to the financial problems that began in 2008 was the Troubled Asset Relief Program (TARP) — the so called bailout of the banking system. Whatever its merits, it was, for the most part, unpopular with the American public. Lawmakers, fearful that the economy might actually...

This article will examine in a more systematic way the effectiveness of deposit insurance coverage in maintaining banking stability. More specifically, I argue that raising deposit insurance coverage in an attempt to eradicate bank runs is not necessarily the optimal policy because bank runs,...

During 2008-09, the federal government extended multiple guarantee programs in an effort to restore the financial market and contain the panic and crisis in the market. For example, the Treasury provided a temporary guarantee program for the money market funds, the FDIC decided to stand behind...

This paper analyses the effect of soaring demand in the lending market shortly before a fi nancial crisis (hereinafter "credit run"). A credit run affects the asset correlation, which is one of the main parameters in the Internal Ratings-Based Approach (IRBA) of the Basel III framework. In the...

The North Atlantic Financial Crisis of 2007 did suddenly and massively disrupt the activities of financial markets and financial institutions that were organised under a market-based financial architecture at local and international levels. Both corporate and public policies were at the origin...

We find that the level of bank herding in real estate loans during boom period is substantially higher than the level of bank herding in commercial and industrial loans or consumer loans. More importantly, we find that bank herding significantly increases systemic risk. In particular, herding in...