In summer 2011, elevated sovereign risk in Eurozone peripheral countries increased the solvency risk of Eurozone banks, precipitating a run on their short-term debt. We assess the effectiveness of different European Central Bank (ECB) interventions that followed – lender of last resort vs....

We document the mechanism through which the risk of fire sales in the sovereign bond market contributed to the effectiveness of two major central bank interventions designed to restore financial stability during the European sovereign debt crisis. As a lender of last resort via the long-term...

Consistent with theoretical predictions, we show that investors incorporate expected joint liquidation costs in their portfolio decisions. Using detailed security-level holdings of U.S. Money Market Mutual Funds (MMFs), we construct a new measure of portfolio similarity among investors and show...

We compare the capital shortfall measured by regulatory stress tests, to that of a benchmark methodology — the “V-Lab stress test” — that employs only publicly available market data. We find that when capital shortfalls are measured relative to risk-weighted assets, the ranking of...