Following the extra ordinary decision to bail in the unsecured depositors and restructure the two main banks and the near complete destruction of the country’s economic business model as an International Financial Centre, the author considers the changes necessary to rebuild the economy of...

A drawback of available portfolio credit risk models is that they fail to allow for default risk dependency across loans other than through common risk factors. Thereby, thesemodels ignore that close ties can exist between companies due to legal, financial and business relations. In this paper,...

Research on the statutory license for certain types of copyright-protected content has revealed an unlikely symbiosis between uncertainty and efficiency. Contrary to received wisdom, which tells us that in order to increase efficiency, we must increase stability, this Article will show that...

I construct a model of over-the-counter (OTC) trading to study equilibrium allocation properties under bilateral clearing (BC) and central counterparty (CCP) clearing of OTC derivatives. I show how CCP mutualizes individual counterparty exposures and prevents massive equilibrium defaults. I...

We study a dynamic moral hazard setting where the manager has private ev- idence that predicts the firm's cash flows. When performance is low, bad news disclosure is rewarded by a lower borrowing cost relative to the no-evidence case. In contrast, no disclosure is associated with higher...

Through this paper the author emphasizes the need for a coherent and multidisciplinary methodology in the assessment of credit risk in corporate lending. It is argued that credit risk should be assessed in the only context that is possible which is through cash flow projections generated by...

We empirically investigate the effect that relationship lending has on the availability and pricing of interbank liquidity. Our analysis is based on a daily panel of unsecured overnight loans between 1,079 distinct German bank pairs from March 2006 to November 2007, a period that includes the...

We study the design of stress tests that provide information about aggregate and idiosyncratic risk in banks’ portfolios and impose contingent capital requirements. In the optimal static test, an adverse scenario fails all weak and some strong banks, limiting the stigma of failure. Sequential...