the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of …

compensation. We argue that excessive risk taking in the financial sector originates from the shareholder moral hazard created by … shareholder risk-shifting incentives. The decisive advantage of this approach compared to existing regulation is that the … regulator does not need to be able to properly measure the bank investment risk, which has been shown to be a difficult task …

liquidity risk and characterizes them. Both a solvency (leverage) and a liquidity ratio are required to control the … interpret the 2007 run on SIV and ABCP conduits. -- stress ; crises ; illiquidity risk ; insolvency risk ; leverage ratio …

We propose a new theory of systemic risk based on Knightian uncertainty (or "ambiguity"). We show that, due to … pessimistic about other asset classes as well. This means that idiosyncratic risk can create contagion and snowball into systemic … risk. Furthermore, in a Diamond and Dybvig (1983) setting, we show that, surprisingly, uncertainty aversion causes …

This paper examines whether the risk of future collateral fire sales affects lending decisions. We study US mortgage … risk of joint collateral liquidation. As expected, these results are stronger when fire-sale risk is more salient. The … results suggest that fire-sale risk has implications for credit allocation, and that lenders’ collective (ex-ante) origination …

Rather than taking on more risk, US insurers hit hard by the crisis pulled back from risk taking, relative to insurers … hit less hard by the crisis. Capital requirements alone do not explain this risk reduction: insurers hit hard reduced risk … within assets with identical regulatory treatment. State level US insurance regulation makes it unlikely this risk reduction …

We show that systemic risk in the banking sector breeds macroeconomic uncertainty. We develop a model of a production …-driven uncertainty amplifies business cycle volatility and increases risk premia on asset prices. A countercyclical capital buffer lowers …

We show that systemic risk in the banking sector breeds macroeconomic uncertainty. We develop a model of a production …-driven uncertainty amplifies business cycle volatility, increases risk premia on asset prices and yields a new benefit from …