TARGET2 and the European Sovereign Debt Crisis The TARGET2 (T2) positions on the balance sheets of euro area national central banks (NCBs) have increased unprecedentedly since the beginning of the financial crisis. Currently only four euro area NCBs record T2 claims, while the remaining NCBs are...

Why do politicians sometimes pursue policies with uncertain outcomes? We present a model in which politicians are unable to pre-commit to a status quo policy, and where investors and voters face a conflict over the division of output. Politicians may deviate from the status quo and pursue risky...

We analyze the problem of a policy authority (PA) that must decide when to resolve a troubled bank whose underlying solvency is uncertain. Delaying resolution increases the chance that information arrives that reveals the bank's true solvency state. However, delaying resolution also gives...

The general view underlying bank regulation is that bank disclosures providemarket discipline and reduce banks' risk-taking incentives. We show that bankdisclosures can increase bank leverage and bank risk. The reason stems from theinteraction between insured and uninsured debt. Bank disclosures...

How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank's optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank...

Die Europäische Zentralbank (EZB) hat im Zuge der europäischen Schuldenkrise in den vergangenen Jahren massiv an Bedeutung gewonnen. Der sich zuspitzende Verlauf der Krise vor allem in den südlichen Ländern des Euroraums zwang die EZB zu Maßnahmen, die die geldpolitischen Aktivitäten einer...

In the wake of the recent European debt crisis, the European Central Bank (ECB) has grown significantly in importance. As the crisis worsened, the ECB needed to take measures that went far beyond standard monetary policy operations - particularly with respect to its function as lender of last...

How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank's optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank...