This paper analyzes financial institutions' capital allocation decisions when their required equity capital depends on the risk of their projects chosen. We discuss the relevance of strict position limits against discretionary trading through the use of an optimal compensation function. We show...

We use a spatial Probit model to study banking crises and show that the probability of a systemic banking crisis depends on contagion and that this effect may result from business connections between institutions or from similarities between banking systems.

It has been proposed that the potential procyclicality of Basel II could be alleviated by using through-the-cycle (TTC) ratings in IRBA models. A TTC rating would be based on the structural component of the debtor’s credit risk ignoring cyclical fluctuations. This paper tests for the existence...

We describe the propagation of the recent financial crisis to Japan and compare current monetary policy reactions by the Bank of Japan (BoJ) with actions taken during the 1990s and with current policy reactions by other major central banks. First, we review the recent literature on the origins...

The goal of the Basel II regulatory formula is to model the unexpected loss on a loan portfolio. The regulatory formula is based on an asymptotic portfolio unexpected default rate estimation that is multiplied by an estimate of the loss given default parameter. This simplification leads to a...

How should banks be regulated? Must governments tightly regulate banks to prevent financial panics, or is little or no regulation best? Can private banks be trusted to issue paper money or must this activity be a government monopoly? Theory can help answer these questions, but increasingly in...

This paper presents a monetary model that links interbank markets to capital accumulation and growth. The purpose of this paper is to study how interbank markets affect real economic activities, and to find the monetary policy implications. The model shows that, in a stationary equilibrium, the...

To understand the transformation of banking in the post-communist transition, this paper examines the cost efficiency of 289 banks in 15 east European countries. The findings showed that banking systems in which foreign-owned banks have a larger share of total assets record lower costs and that...

Fünf Jahre nach der Abschaffung der umfassenden Haftung für Landesbanken hat sich deren Lage deutlich verschärft. Dazu hat auch die internationale Finanzkrise beigetragen. Einzelne Landesbanken benötigten erhebliche Kapitalspritzen. Inzwischen ist klar, dass eine weitere Konsolidierung im...

This paper analyzes the effects of parliamentary election cycles on the Turkish banking system. Using annual bank-level data representing all banks in Turkey during 1963–2005, we present evidence of meaningful differences in the structure of bank assets, liabilities and financial performance...