This paper proposes Spillover Persistence as a measure for financial fragility. The volatility paradox predicts that fragility builds up when volatility is low, which challenges existing measures. Spillover Persistence tackles this challenge by exploring a novel dimension of systemic risk: loss...

The avenue to find a balanced assessment of systemic financial institutions needs the integration of macro and micro granular datasets. This paper investigates how macroeconomic shocks affect systemic risk through several transmission channels. Employing Indonesia datasets over 2008–2019, we...

We highlight the ex ante risk-shifting incentives faced by a bank's shareholders/managers when CoCos (contingent convertible capital) are part of the capital structure. The risk shifting incentive arises from the wealth transfers that the shareholders will receive upon the CoCo's conversion...

Pierret (2015) presents empirical analysis of the solvency-liquidity nexus for the banking system, documenting that a shock to the level of banks' solvency risk is followed by lower short-term debt. Conversely, higher short-term debt Granger-causes higher solvency risk. These results point...

Interbank claims are a concern to regulators as they might facilitate the dissemination of defaults and generate spill-over effects. Building on a simple model, this paper introduces a measure of the spill-over effects that a bank generates when it defaults. The measure is based on an explicit...

I study economies where banks do not fully internalize the social costs of default, which distorts their lending decisions. In all these economies, a common general equilibrium effect leads to aggregate over-investment. As a result, under laissez-faire, crises are too frequent and too costly...

Over the past decades, the framework for financing has experienced a fundamental shift from traditional bank lending towards a broader market-based financing of financial assets. As a consequence, regulated banks increasingly focus on coping with regulatory requirements meaning that the...

This study highlights some deficiencies of the stock markets’ risk legislation framework, and particularly the CESR (2010) guidelines. We show that the current legislative framework fails to offer incentives to financial management companies to invest in advanced models for more representative...

This paper presents a comprehensive model of financial contagion encompassing both direct and indirect transmission channels. We introduce direct contagion through a 2-layered multiplex network to account for the distinct dynamics resulting from collateralized and uncollateralized transactions....

We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited...