The structural reforms under way in Eastern Europe have revealed the weakness of the banking sector there; macroeconomic stability and other reforms are thereby threatened. A model is developed that clarifies the role of banking in an emerging market economy and the danger that the disturbances...

It is shown that the inefficiencies created by the soft budget constraint enjoyed by enterprises in Eastern Europe and elsewhere will continue so long as governments are unable credibly to threaten not to bail out loss makers. The institution of a suitable social safety net can strengthen...

A central bank must decide on the frequency with which it will conduct open market operations and the variability in short-term money market that it will allow. The paper shows how the optimal operating procedure balances the value of attaining an immediate target and broadcasting the central...

We study the optimal joint design of prudential supervision and deposit guarantee regulations in a multi-country, integrated banking market, where policy-makers have preferences regarding profitability and stability of the banking sector. Non-coordinated policies will tend to yield too little...

Änderungen der Notenbankzinsen sind in Deutschland wie in allen anderen westlichen Industrieländern das zentrale Instrument der Geldpolitik. Sie stellen den ersten Schritt im monetären Transmissionsprozeß dar. Die wichtigsten Notenbankzinsen sind in Deutschland der Pensionssatz, der...

A mechanism is proposed that aims to reduce the risk of a banking sector liquidity crisis—which is a quintessentially systemic event and thus the object of macroprudential policy—and moderate the effects of a crisis should one occur. The instrument would give banks more incentive...

Depositor preference and collateralization of borrowing may reduce the cost of settling the conflicts among creditors that arises in case of resolution or bankruptcy. This net benefit, which may be capitalized into the value of the bank rather than affect creditors’ expected returns, should...

Islamic and cooperative banks such as credit unions are broadly similar in that they both share some risk with savers. However, risk sharing goes along with ownership control in cooperatives, whilst Islamic banks share risk with borrowers and downside risk with depositors. Islamic banking is...

Rules of thumb can be useful in undertaking quick, robust, and readily interpretable bank stress tests. Such rules of thumb are proposed for the behavior of banks’ capital ratios and key drivers thereof—primarily credit losses, income, credit growth, and risk weights—in advanced and...

The level of a bank‘s capitalization can effectively transmit information about its riskiness and therefore support market discipline, but asymmetry information may induce exaggerated or distortionary behavior: banks may vie with one another to signal confidence in their prospects by...