We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to … model of sovereign borrowing with limited commitment, where domestic banks hold government debt and also provide credit to …

Banking regulation routinely designates some assets as safe and thus does not require banks to hold any additional …) domestic banks to "gamble" with depositors' funds by purchasing risky government bonds (and assets closely correlated with them …). A sovereign default in this environment then results in a banking crisis. Critically, we show that permitting banks to …

The recent crisis has shown that systemically relevant banks in distress are likely to benefit from governmental … support. This reduces their downside risk and leads to moral hazard, i.e. to incentives for these banks to assume excessive … analysis combines bank balance sheet information from 92 countries with Fitch Support Ratings and World Bank survey data on …

We develop a model of bank risk-taking with strategic sovereign default risk. Domestic banks invest in real projects … government's incentives to repay and therefore lowers its borrowing costs. For low levels of government debt, banks influence … default are perfectly correlated. Banks fail to account for how their bond purchases influence the government's default …

Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds … are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If … that, in response to domestic monetary policy easing, global banks increase their foreign reserves in currency areas with …

When central banks adjust interest rates, the opportunity cost of lending in local currency changes, but—in absence of … frictions—there is no spillover effect to lending in other currencies. However, when equity capital is limited, global banks …

Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds … are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If … that, in response to domestic monetary policy easing, global banks increase their foreign reserves in currency areas with …

regulator can rely on the funds concentration effect to save long-term investment projects. Some banks are forced into … bankruptcy with the result that other banks obtain more new funds and remain solvent. We investigate two different … implementations of the funds concentration effect and the corresponding discriminatory bailout scheme: “random bailout“ and “bailout …

sovereigns that are more indebted or where banks have a larger exposure to their own sovereign, suffer larger feedback loop … effects from Sovereign Risk into Bank Risk. In the opposite direction, in countries where banks fund their activities with …