The regulatory use of banks' internal models aims at making capital requirements more accurate and reducing regulatory arbitrage, but may also give banks incentives to choose their risk models strategically. Current policy answers to this problem include the use of risk-weight floors and...

Basel III has introduced a non-risk-weighted leverage ratio requirement (LRR) which complements the internal ratings based (IRB) capital requirements. It provides a backstop against model risk which arises if some loans get incorrectly rated and become toxic. We study the effects of the LRR on...

A common practice of banks has been to pool assets of different qualities and then sell a fraction of the newly created portfolios to investors. We extend the signaling model for single sales of risky assets to portfolio sales. We identify conditions under which signaling at the portfolio level...

Self-financing has often been seen as an important source for research-and-development (R&D) funding. However, an in-depth comparison between the determinants of self-financing in the case of traditional investments versus those in R&D has not been provided yet. We use a comprehensive data set...

This paper investigates the impact of heterogeneous wealth on credit allocation from an egalitarian opportunity and an efficiency point of view. Under asymmetric information on both wealth and the responsibility variable there is no trade-off between equality and efficiency, actually wealth...

In the aftermath of the global financial crisis, the market for unsecured credit literally dried out and collateral secured debt became the most widely used concept to coinsure against liquidity shocks. However, since financial assets are usually unproductive, the question comes up why...

Despite a growing interest, researchers and practitioners still struggle to transfer the blockchain concept introduced by Bitcoin to market-oriented application scenarios. To shed light on the technology's usage in markets with asymmetric information, this study analyzes the effect of the...

We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can...

The work of Diamond and Dybvig, 1983 is commonly understood as a theory of bank runs driven by self-fulfilling prophecies. Their contribution may alternatively be interpreted as a theory for preventing these bank runs. Absent aggregate risk over liquidity demand, they show that a simple scheme...

We study whether a default option attached to non-recourse mortgages improves borrowers' surplus from mortgage financing. By defaulting on mortgage debt, borrowers can save their non-collateralized income from being foreclosed. In exchange, borrowers must forgo non-monetary surplus from...