Diamond and Dybvig (1983) is commonly understood as providing a formal rationale for the existence of bank-run equilibria. It has never been clear, however, whether bank-run equilibria in this framework are a natural byproduct of the economic environment or an artifact of suboptimal contractual...

Diamond and Dybvig (1983) is commonly understood as providing a formal rationale for the existence of bank-run equilibria. It has never been clear, however, whether bank-run equilibria in this framework are a natural byproduct of the economic environment or an artifact of suboptimal contractual...

Diamond and Dybvig (1983) is commonly understood as providing a formal rationale for the existence of bank-run equilibria. It has never been clear, however, whether bank-run equilibria in this framework are a natural byproduct of the economic environment or an artifact of suboptimal contractual...

Banks may be reluctant to remove bad loans from their portfolios during liquidity shortfalls, giving rise to a moral hazard problem. In this paper, we analyze how liquidity shortages affect the ability of the interbank market to provide liquidity in a moral hazard setting. We distinguish two...

Pierret (2015) presents empirical analysis of the solvency-liquidity nexus for the banking system, documenting that a shock to the level of banks' solvency risk is followed by lower short-term debt. Conversely, higher short-term debt Granger-causes higher solvency risk. These results point...

I discuss the asset pricing and policy implications of Danielsson, Shin and Zigrand, "Endogenous and Systemic Risk." I show that leverage as conventionally measured was not a reliable indicator of systemic stress and that a more detailed examination of bank balance sheets and asset holdings is...

We study a novel mechanism through which systemic risk, in the form of self-fulfilling runs, forces the banks to hoard liquidity. To this end, we develop an environment where banks offer insurance to their depositors against both idiosyncratic and aggregate real uncertainty, by holding a...

The introduction of bail-in resolution powers to impose the costs of a large bank's failure on its creditors (rather than on the taxpayer) is the most intriguing initiative of the post-financial crisis regulatory framework. However, a fundamental conundrum remains in the legal regime: it is...

We quantify the gains from regulating maturity transformation in a model of banks which finance long-term assets with non-tradable debt. Banks choose the amount and maturity of their debt trading off investors' preference for short maturities with the risk of systemic crises. Pecuniary...