Adopted in part as a response to the 2007-08 financial crisis, the Basel III accord is the most recent revision to international capital standards for banks. Basel III primarily relies on methods similar to those of Basel II for assessing the relative risks of different types of assets. The main...

A substantial body of literature has now developed as a result of efforts to identify the fundamental reasons for the fragility of financial intermediaries in the Diamond-Dybvig theory of banking. Many of these articles focus on the interaction between sequential service and uncertainty about...

This paper examines how the tightening of accounting constraints associated with the SunTrust bank decision in 1998 impacted the loan loss reserve policies of banks differently based on ownership structure. The SunTrust case, the result of an SEC inquiry over possible overstating of loan loss...

We find the optimal target values for fiscal rules and measure their aggregate effects using a model of sovereign default. We calibrate the model to an economy that pays a significant sovereign default premium when the government is not constrained by fiscal rules. For different levels of the...

Price triggers in contingent capital bonds are analyzed. Pervasiveness of multipleequilibria and nonexistence of equilibrium in theoretical models is illustrated. Evidence of these problems from market experiments is summarized. Possible solutions are evaluated.

This paper examines an adverse selection economy in which efficient resource allocation is supported by intermediary contracts (coalitions). Agents differ along an ex ante publicly observable dimension, so that the equilibrium arrangement yields a diverse set of financial arrangements among...

The East Asian financial crisis exposed the problems of excessive government intervention in credit allocation and poor supervision of the banking system. We argue that the crisis is an opportunity to reformulate the strategies of growth by way of eliminating politicized intervention on...

Does growing commercial-bank reliance on Federal Home Loan Bank (FHLBank) advances increase expected losses to the Bank Insurance Fund (BIF)? Our approach to this question begins by modeling the link between advances and expected losses. We then quantify the effect of advances on default...

The purpose of this paper is to describe recent financial innovation in the United States, outline its principal implications with regard to (1) the structure and behavior of financial markets and (2) the conduct of monetary policy, and speculate on the likely character of further innovation in...

We measure the effects of debt dilution on sovereign default risk and show how these effects can be mitigated with debt contracts promising borrowing-contingent payments. First, we calibrate a baseline model à la Eaton and Gersovitz (1981) to match features of the data. In this model, bonds'...