This paper presents a new theory that explains why it is beneficial for banks to be highly interconnected and to engage in herding behavior. It shows that these two important causes of systemic risk are interdependent and thus cannot be considered in isolation. The reason is that banks have an...

This paper sets the background for the Special Issue of the Journal of Empirical Finance on the European Sovereign Debt Crisis. It identifies the channel through which risks in the financial industry leaked into the public sector. It discusses the role of the bank rescues in igniting the...

We develop a theoretical model examining the financial stability policy of a central bank serving as both the lender of last resort and the regulator of the financial system. The model accommodates the possibility of financial contagion through interbank market linkages, and adverse feedback...

Globalisation and the governance of the international financial system have arrived at the crossroads, where either a coherent level playing field for the cross-border activities of banks and multinational enterprises is settled upon, or the risk of another crisis will build up again. This book...

Globalisation and the governance of the international financial system have arrived at the crossroads, where either a coherent level playing field for the cross-border activities of banks and multinational enterprises is settled upon, or the risk of another crisis will build up again. This book...