We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

After the destructive impact of the global financial crisis of 2008, many believe that pre-crisis financial market regulation did not take the "big picture" of the system suffciently into account and, subsequently, financial supervision mainly "missed the forest for the trees". As a result, the...

There is growing acknowledgement among policymakers that climate change may give rise to potentially catastrophic financial risk and impact financial stability. This paper explores the specific features of climate-related financial risks (CRFR), drawing on a growing body of macrofinancial...

We analyze the reaction of stock returns and CDS spreads of banks from Europe and the United States to four major regulatory reforms in the aftermath of the subprime crisis, employing an event study analysis. In contrast to the public perception that nothing has happened, we find that financial...

Deposit insurance can protect financially unsophisticated savers and prevent depositor runs, but it creates a need for regulation to control excessive risk-taking by insured banks. Several regulatory flaws were exposed by the 2008-2009 financial crisis. They include: risk-based capital standards...

Theory suggests that government aid to banks may either reduce or increase systemic risk. We are the first to address this issue empirically, analyzing the Troubled Assets Relief Program (TARP). Analysis suggests that TARP significantly reduced contributions to systemic risk, particularly for...

This paper analyses the evolution of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. In the first part we document the evolution of various measures of systemic risk as the Basel process unfolds. Most strikingly, we...

This paper introduces a two-step strategy, the synthetic control method combined with the difference-in-differences method, to evaluate the effectiveness of the Dodd-Frank Act (DFA). We find no evidence from our counterfactual analysis in support of the DFA reducing systemic risk in the US...

Using an international sample of 95 banks from 21 European and North American countries spanning from 2008 to 2014, this paper assesses the effectiveness of a large set of general and housing macro-prudential policies in controlling banks' systemic importance and risk-taking incentives....

We study the impact of higher bank capital buffers, namely of the Other Systemically Important Institu- tions (O-SII) buffer, on banks' lending and risk-taking behaviour. The O-SII buffer is a macroprudential policy aiming to increase banks' resilience. However, higher capital requirements...