This paper studies the use of information for incentives and risk sharing in agency problems. When the principal is risk neutral or the outcome is contractible, risk sharing is unnecessary or completely taken care of by a contract on the outcome. In this case, information systems are ranked...

We provide a theoretical foundation for the claim that prolonged periods of easy monetary conditions increase bank risk taking. The net effect of a monetary policy change on bank monitoring (an inverse measure of risk taking) depends on the balance of three forces: interest rate pass-through,...

Although Sweden has recovered from the financial crisis, authorities have already initiated exit measures from crisis response policies. The Financial Sector Assessment Program (FSAP) Update undertook a financial stability analysis of the banking sector, including a comprehensive stress-testing...

This Selected Issues paper examines the implications of lower crude oil prices on Malaysia’s economy. Although Malaysia’s net oil exports are now very small as a share of GDP, its gas exports are sizeable. The paper provides some background on the structure of energy production and...

The composition of short-term and medium-term adjustment measures will facilitate sufficient short-term adjustment flexibility, and be consistent with medium-term fiscal sustainability. Improving debt resolution instruments will help the banks to regain confidence in lending. Meanwhile, there is...

Portfolio credit risk measurement is greatly affected by data constraints, especially when focusing on loans given to unlisted firms. Standard methodologies adopt convenient, but not necessarily properly specified parametric distributions or simply ignore the effects of macroeconomic shocks on...

We develop a theoretical framework that encompasses four distinct motives for dollarization and discuss appropriate policy responses to help contain dollarization and its attendant risks. "Moral hazard" dollarization provides a clear case for prudential policy activism. However, prudential...

The volume of credit extended by a bank can be an informative signal of its abilities in loan selection and management. It is shown that, under asymmetric information, banks may therefore rationally lend more than they would otherwise in order to demonstrate their quality, thus negatively...

The large and growing international linkages of big Irish banks expose them to idiosyncratic shocks arising in other countries. We analyze international interdependencies of Irish banks-during both normal times and in periods of large shocks or extreme events-using an existing methodology with...

This paper presents an integrated framework for assessing systemic risk. The framework models banks’ capital asset ratios as a function of future losses and credit growth using a generalized method of moments to calibrate shocks to credit quality and credit growth. The analysis is...