The paper revisits and qualifies existing insights on security design. A rich literature argues that tranching creates debt-like instruments that are robust to adverse selection or discourage wasteful information acquisition. Yet, for a given information structure, while tranching confines and...

The paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy. When everyone engages in maturity transformation, authorities haver little choice but facilitating refinancing. In turn, refusing to adopt a risky balance...

"This paper analyzes the possibility and the consequences of rational bubbles in a dy- namic economy where financially constrained firms demand and supply liquidity. Bub- bles are more likely to emerge, the scarcer the supply of outside liquidity and the more limited the pledgeability of...

The paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy. When everyone engages in maturity transformation, authorities have little choice but facilitating refinancing. In turn, refusing to adopt a risky balance...

The recent unravelling of the Eurozone's financial integration raised concerns about feedback loops between sovereign and banking insolvency. The paper provides a theory of the feed backloop that allows for both domestic bailouts of the banking system and sovereign debt forgiveness by...

Traditional banking is built on four pillars: SME lending, access to public liquidity, deposit insurance, and prudential supervision. This paper unveils the logic of the quadrilogy by putting core services to "special depositors and borrowers" at the heart of the analysis, and makes room for...