Market distress can be the catalyst of a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates … how market distress and deleveraging can fuel each other in the presence of adverse selection problems in asset markets … to a market breakdown. I find that adverse selection creates both an "ex-ante" inefficiency because it distorts agents …

interbank money market. The proposed model shows that the implementation of swap programmes to exchange government bonds for … determinants for policy effectiveness are the market value of the collateral on defaulted loans, the risk premium on the interbank … money market, the composition of banks' balance sheet liabilities and the degree of banking competition. The quantitative …