We propose a methodology for measuring the market-implied capital of banks by subtracting from the market value of equity (market capitalization) a credit-spread-based correction for the value of shareholders' default option. We show that without such a correction, the estimated impact of a...

We review heterogeneous agent-based models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

We review heterogeneous agent models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

The U.K. financial sector is globally systemic, open, and complex. It has weathered the COVID-19 pandemic fittingly, thanks to the post-GFC reforms, a proactive macroprudential stance, and an effective multipronged response to maintain financial stability. Brexit uncertainties are being handled...