Much progress has been made in reducing settlement risk in foreign exchange markets, particularly through use of CLS Bank. However, the remaining exposures are sometimes still significantly large and not always well managed, creating the potential for systemic risk. To address this problem, it...

Basic information on the organization, operation, and growth of the financial system helps the students and early career researchers to gain better insights and understanding of the subject. The purpose of this paper is to compile the concepts, terminologies, and definitions – used in the...

We develop a model of the joint capital structure decisions of banks and their borrowers. Strikingly high bank leverage emerges naturally from the interplay between two sets of forces. First, seniority and diversification reduce bank asset volatility by an order of magnitude relative to that of...

Bilateral derivatives valuation is subject to counterparty credit risk (CCR) in that a counterparty could jump to default or its credit spread could vary over time. In the nomenclature of risk management, the former is called CCR exposure and the later leads to credit valuation adjustment (CVA)....

This article provides an overview of literature related to capital structure theories for entrepreneurial firms. It identifies gaps and controversial areas in existing literature and also discusses potential directions for future research. Credit rationing, signalling by risk-bearing, the...

Flexibility theory of capital structure, credit rationing, and stage-financing theory are consistent with many patterns of financing of entrepreneurial or small/medium size enterprises (SME). Tax theory of capital structure does not seem to play a significant role for SMEs as opposite to large...

We use an integrated approach to analyze the reasons behind the discount on the balance-sheet fair value of illiquid financial instruments held by European banks and classified into the Level 3 Fair Value hierarchy under IFRS 7. We believe that the potential sources of misalignment are 1) the...

Federal banking regulators are grappling with how to confront the threats posed by climate change. There are increasingly loud calls for regulators to adjust the “risk-weights” used to calculate banks’ minimum capital requirements based on how exposed their counterparties are to...