In the aftermath of the global financial crisis, policymakers in the United States and elsewhere have adopted stress testing as a central tool for supervising large, complex, financial institutions and promoting financial stability. Although supervisory stress testing may confer substantial...

Although banks are at the center of systemic risk, there are other institutions that contribute to it. With the publication of the leveraged lending guideline in March 2013, the U.S. regulators show that they are especially worried about the private equity firms with their high-risk deals. Given...

Stress testing has recently become a critical risk management and capital planning tool for large financial institutions and their supervisors around the world. However, the one prior U.S. experience tying stress test results to capital requirements was a spectacular failure: the Office of...

What constitutes shadow banking has been described by the international financial institutions, such as FSB, IOSCO, ECB and European Commission. A common characteristic is that several of the shadow banking activities are outside the banking field but are likely to have an impact on the banking...

Operational risk events have severely impacted the development of third-party payment (TPP) platforms, and have even led to a discussion on the operational risk capital charge settlement by relevant international regulators. However, prior studies have mostly focused on qualitative mechanism...

During financial crises, investors demand large amounts of government-backed assets. What constitutes an orderly flight-to-liquidity? Studying how suppliers of government-backed safe assets respond to heightened demand during a crisis is challenging due to a multitude of confounding factors. In...

We present a model in which shadow banking arises endogenously and undermines market discipline on traditional banks. Demandable deposits impose market discipline: Without shadow banking, traditional banks optimally pursue a safe portfolio strategy to prevent early withdrawals. Shadow banking...

The financial crisis of 2007-09 was interpreted by many as evidence that the incentives of managers were not optimally aligned with the interests of shareholders. As a result, a plethora of proposals have been put forward seeking to increase shareholder engagement. However, this shareholder...

We test five hypotheses on whether banks use CDS to hedge corporate loans, provide credit enhancements, obtain regulatory capital relief, and exploit banking relationship and private information. Using new data that link large banks' CDS positions and syndicated lending on individual firms, we...

This paper first highlights the structural features of shadow banking in the euro area, focusing on investment funds. It then discusses the potential systemic risks that the recent expansion of the investment fund sector presents. While investment funds provide important intermediation services...