We introduce banks, modeled as in Diamond and Rajan (JoF 2000 or JPE 2001), into a standard DSGE model and use this framework to study the role of banks in the transmission of shocks, the effects of monetary policy when banks are exposed to runs, and the interplay between monetary policy and...

According to conventional wisdom, the Basel II Accord - a set of capital adequacy standards for international banks drawn up by a committee of G-10 supervisors - is essential if we are to avoid another financial crisis. This paper argues that this conclusion is false: Basel II is not the...

Even as the United States enjoys an economic expansion, there is an undercurrent of concern among economic analysts who follow financial markets. Some feel that the expansion of the credit derivatives markets poses the threat of a crisis similar to the Long-Term Capital Management debacle of...