The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor's point of view since...

The prolonged crisis exposed the vulnerability of a monetary union without a banking union. The Single Supervisory Mechanism (SSM), which started operating in November 2014, is an essential step towards restoring banks to health and rebuilding trust in the banking system. The ECB is today...

Systemic susceptibility highlights the extent to which a banking sector is sensitive to negative shocks. Policymakers and regulators' objective is to avoid financial crises, and even though they can somewhat control local conditions, internationally transmitted crises are difficult to tackle....