We develop an operational model of information contagion and show how it may be integrated into a mainstream, top-down, stress-testing framework to quantify systemic risk. The key transmission mechanism is a two-way interaction between the beliefs of secondary market investors and the...

We propose an improved methodology for modelling potential scenario paths of banks' riskweighted assets, which drive the denominator of capital adequacy ratios. Our approach centres on modelling the internal risk structure of bank portfolios and thus aims to provide more accurate estimations...

We analyze the link between banking sector quality and sovereign risk in the whole European Union over 1999–2014. We employ four different indicators of sovereign risk (including market- and opinion-based assessments), a rich set of theoretically and empirically motivated banking sector...

This paper examines the impact of bank opacity on European financial stability. Based on a panel dataset of capital market-oriented European banks covering the period 2002-2018, it can be shown that bank opacity has a significant influence on the institution-specific contribution to the...

We analyze the question whether and when access to refinancing via repurchase agreements as opposed to asset liquidation increases efficiency to financial intermediators ('banks'). By pledging assets in form of a repo contract the bank can raise cash, by this preventing to forgo returns on sold...

The article deals with the liquidity risk in the banks in the context of the financial crisis. At first, the balance sheet and market liquidity are defined and the main principles of the methods for measuring liquidity risk, which banks use, are identified. Then follow review of main challenges...

In the months preceding the failure of Lehman Brothers in September 2008, banks were willing to pay a premium over the Federal Reserve's discount window (DW) rate to participate in the much less flexible Term Auction Facility (TAF). We empirically test the predictions of a new signalling model...

This paper identifies bank-specific-characteristics and market conditions that contribute to determine prices and demand for liquidity in the interbank market as wells as banks' access to this market. Results indicate that riskier banks pay higher prices and borrow less liquidity, concurrent...

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...