This paper studies how fiscal policy in the eurozone and the United States (US) affected banks’ loan loss provisioning during the COVID-19 crisis. By decomposing government support into below-the-line (loan guarantees) and above-the-line (cash transfers) support, we examine how both types of...

In this paper, we argue for a regulatory framework under which a bank’s required level of equity capital depends on the equity capital of its peers. Such bankingon- the-average rules are transparent and could also be combined with the current regulatory framework. In addition, we argue that...

This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the...

This paper develops a debt-run model to study the effects of liquidity injections on debt markets in the presence of a renegotiation option. In the model, creditors decide when to withdraw their funding and equityholders can renegotiate the contract terms of debt. We show that when equityholders...

This paper provides some general lessons for the design of counter-cyclical capital buffers. Its main empirical contribution is to analyze conditioning variables which could guide the build-up and release of capital. A major distinction for counter-cyclical capital schemes is whether...

This study examines the impact of bank liquidity on bank risk taking. Using quarterly data for U.S. bank holding companies from 1986 to 2014 we find evidence to support that more liquid banks take more risk. This key result is robust for alternative bank risk and liquidity proxies, including...

In the years preceding the 2007-2009 financial crisis, forward-looking indicators of bank risk concentrated and suggested unusually low expectations of bank default. We assess whether the ex-ante (i.e. prior to the crisis) cross-sectional variability in bank characteristics is related to the...

We examine how investors' perception of bank balance sheet risk evolved before and during the March-April 2023 bank run. To do so, we estimate the covariance ("beta") of bank excess stock returns with returns on factors constructed from long-short portfolios sorted on shares of uninsured...

Basel III proposes market discipline (banking disclosure requirements) as a key instrument to achieve soundness in the banking system. Consequently, it is necessary to test the presence of responses to bank risk on the part of the economic agents. This article empirically studies the mechanisms...