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 upside but significant downside risk. The asymmetric distribution of these … returns and their implications for the evolution of bank net worth are important for capturing the frequency and severity of …

investigate a specific type of externality that originates from those borrowers that obtain liquidity from more than one bank. In … this case, contagion may occur if a bank hit by a liquidity shock calls in some loans and borrowers then pay them back by …