We find that intermediary risk appetite plays an important role in the availability of dealer hedging services provided to real economy firms. We show that dealers intermediate the swap exposures of different clienteles and hedge some residual risk in the futures market. Using novel data on WTI...

This paper provides a new estimation method for the marginal expected shortfall (MES) based on multivariate extreme value theory. In contrast to previous studies, the method does not assume specific dependence structure among bank equity returns and is applicable to both large and small systems....

We study a contracting model of leverage and balance sheet size for financial intermediaries that fund their activities through collateralized borrowing. Leverage and balance sheet size increase together when measured risks decrease. When the loss distribution is exponential, the behavior of...

In this article, we review the functioning of private insurance against banking crises and identify its potential. The essential idea is that banks are recapitalized by private investors when negative events would otherwise cause a write-down of capital—or even bank insolvency. There are two...

We investigate a banking system subject to repeated macroeconomic shocks and show that without deposit rate control, the banking system collapses with certainty. Any initial level of reserves will delay the collapse but not avoid it. Even without a banking collapse, the economy still converges...

This paper discusses the relationship between premia for macroeconomic risk in banking, aggregate behavior, and banking crises. We consider a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We highlight how risk premia decline when...

This paper studies the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully...

This paper provides a macroeconomic perspective for government interventions in banking crises. We illustrate how vulnerabilities of the banking sector may build up over time and thus destabilize a banking system. A crisis occurs when a large number of banks fail to meet capital requirements or...

This paper presents empirical support for the existence of wealth effects in the contribution of financial intermediation to economic growth, and offers a theoretical explanation for these effects. Using GMM dynamic panel data techniques applied to study the growth-promoting effects of financial...

We revisit the link between bailouts and bank risk taking. The expectation of government support to failing banks creates moral hazard—increases bank risk taking. However, when a bank’s success depends on both its effort and the overall stability of the banking system, a government’s...