The paper analyzes a very stylized model of crises and demonstrates how the degree of strategic complementarity in the actions of investors is a critical determinant of fragility. It is shown how the balance sheet composition of a financial intermediary, parameters of the information structure...

Recent empirical evidence suggests that financial networks exhibit a core periphery network structure. This paper aims at giving an economic explanation for the emergence of such a structure using network formation theory. Focusing on intermediation benefits, we find that a core periphery...

This paper investigates the importance and the determinants of trust in a lending situation using an online controlled experiment. We find that communication can facilitate collaboration between lenders and borrowers through three channels of trust: 1) an information channel, 2) a preference...

Using hand-collected race information of small business owners that concealed their race in Paycheck Protection Program applications, we find evidence that not disclosing race information in loan applications pays off significantly. Our results show that black-owned businesses that concealed...

It is known that sunspots can trigger panic-based bank runs and that the optimal banking contract can tolerate panic-based runs. The existing literature assumes that these sunspots are based on a publicly observed extrinsic randomizing device. In this paper, I extend the analysis of panic-based...

Individual financial systems can be understood as very specific configurations of certain key elements. Often these configurations remain unchanged for decades. We hypothesize that there is a specific relationship between key elements, namely that of complementarity. Thus, complementarity seems...

It is known that sunspots can trigger panic-based bank runs and that the optimal banking contract can tolerate panic-based runs. The existing literature assumes that these sunspots are based on a publicly observed extrinsic randomizing device. In this paper, I extend the analysis of panic-based...

Using the model of Rochet and Vives (2004), this note shows that a prudential regulator can in general not mitigate a bank’s failure risk solely by means of liquidity requirements. However, their effectiveness can be restored if, in addition, minimum capital requirements are met. This provides...

Can the risk of losses upon premature liquidation produce bank runs? We show how a unique run equilibrium driven by asset liquidity risk arises even under minimal fundamental risk. To study the role of illiquidity we introduce realistic norms on bank default, such that mandatory stay is...