One way of internalizing the externalities that each individual bank imposes on the rest of the financial system is to impose capital surcharges on them in line with their systemic importance. Given the complexity of the financial system and the resulting difficulties in measuring systemic...

We analyze shareholders' incentives to change the leverage of a firm that has already borrowed substantially. As a result of debt overhang, shareholders have incentives to resist reductions in leverage that make the remaining debt safer. This resistance is present even without any government...

During the last years the relationship between financial development and economic growth has received widespread attention in the literature on growth and development. This paper summarises in its first part the results of this research, stressing the growth-enhancing effects of an increased...

This paper develops a new approach for conceptualizing and measuring the risk associated with bank failure. The price of this risk in risk-adjusted present-value terms is estimated at $170-340 million per annum (0.07-0.15% of GDP), representing the price of the financial risk that exists ex-ante...

In August 2007 the United Kingdom experienced its first bank run in over 140 years. Although Northern Rock was not a particularly large bank (it was at the time ranked 7th in terms of assets) it was nevertheless a significant retail bank and a substantial mortgage lender. In fact, ten years...

In March 2012 a conference, organised jointly by the ICFR and SUERF, on "Future Risks and Fragilities for Financial Stability", explored what the next pressure points for financial stability might be, how these may arise from the response to the last financial crisis, and how the industry and...

Banks play a central role in the functioning of the economy. Not only do they allocate financial resources, they also collectively create money in the process of granting loans. In this way, they have a considerable impact on the type of activities that are financed in society. During the...

Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, the resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by...

This paper examines the negative externalities that may occur when a large bank fails, describes the nature of those externalities, and explores whether they may be greater in a case involving a large cross-border banking organization. The analysis suggests that the chief negative externalities...

This paper gives an overview over corporate governance and banking regulation in Germany. Particular attention is put on legal and regulatory changes that were made in response to the financial market crisis. The paper shows that the changes mainly focus on the remuneration of managers and on...