We study the functioning and possible breakdown of the interbank market in the presence of counterparty risk. We allow banks to have private information about the risk of their assets. We show how banks’ asset risk affects funding liquidity in the interbank market. Several interbank market...

To what extent was the credit contraction during the global financial crisis due to more intense screening and monitoring by banks? We address this question by analysing changes in the structure of a large number of syndicated loans to private, non-financial corporations. We find an increase in...

Credit score cutoff rules result in very similar potential borrowers being treated differently by mortgage lenders. Recent research has used variation induced by these rules to investigate the connection between securitization and lender moral hazard in the recent financial crisis. However, the...

Two factors have proven to be strongly relevant for the subprime mortgage crisis. The first is the lack of screening incentives of originators, which had not been anticipated by investors. The second is that investors relied too much on credit ratings. We examine whether investors have learned...

To address the challenges posed by global systemically important banks (G-SIBs), the Basel Committee on Banking Supervision recommended an "additional loss absorbency requirement" for these institutions. Along these lines, I develop a microfounded design of capital surcharges that target the...

Modern banking systems are highly interconnected. Despite their various benefits, the linkages that exist between banks carry the risk of contagion. In this paper we investigate how banks decide on direct balance sheet linkages and the implications for contagion risk. In particular, we model a...

This paper provides a unified analysis for the onset of the 1998 financial crisis and the strong economic recovery afterward in Russia and other former Soviet Union countries. Before the crisis a banking failure arose owing to the coexistence of a lemons credit market and high government...

How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt...

This paper proposes a positive theory of the links between banks' capitalisation and their liquidity risk taking, the extent of fire-sale problems, and the severity of liquidity crises. In a basic framework with a single bank, we find that banks' incentives to hold liquidity for precautionary...

This paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy and firms use non-bank finance, including trade credits...