This paper studies the effects of mortgage subsidies and imperfect competition in the U.S. mortgage market. I exploit novel quasi-experimental variation in interest rates generated by the discontinuities in pricing rules and find evidence of advantageous selection. I develop and estimate a rich...

This paper analyzes the costs and benefits of a no-fault-default debt structure as an alternative to the typical bankruptcy process. We show that the deadweight costs of bankruptcy can be avoided or substantially reduced through no-fault-default debt, which permits a relatively seamless transfer...

The use of contractual engineering to create channels of credit intermediation outside of the realm of banking regulation has been a recurring activity in Western financial systems over the last 50 years. After the financial crisis of 2007 and 2008, this phenomenon, at that time commonly...

We propose a worldwide-based loan portfolio to measure banks’ sectoral concentration that features prominently in episodes of bank specialization. We use the banks’ real loan allocation worldwide instead of the in-sample data to compute a bank specialization. We find that firms borrowing...

I use an accounting reform to assess the agency cost of debt in diversified firms. Firms that switch from single-to-multisegment following the reform suffer a 12% increase in the bond spread than their standalone peers. Consistent with lenders anticipating underinvestment and asset substitution...

The parameter loss given default (LGD) of loans plays a crucial role for risk-based decision making of banks including risk-adjusted pricing. Depending on the quality of the estimation of LGDs, banks can gain significant competitive advantage. For bank loans, the estimation is usually based on...

In this paper, we study the determinants of credit risk in the Greek banking sector. Credit risk is related to bank asset quality and considered responsible for bank failures. In this context, we investigate how loan quality can be explained by accounting and macroeconomic factors. Aggregate...

In this paper, we develop a new capital adequacy buffer model (CABM) which is sensitive to dynamic economic circumstances. The model, which measures additional bank capital required to compensate for fluctuating credit risk, is a novel combination of the Merton structural model which measures...

Banks typically determine their capital levels by separately analysing credit and interest rate risk, but the interaction between the two is significant and potentially complex. We develop an integrated economic capital model for a banking book where all exposures are held to maturity. Our...

We study the functioning of secured and unsecured inter-bank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007-2009 financial crises. Interest rates decouple across secured and unsecured markets following an...