We propose a new method for analysing multi-period stress scenarios for portfolio credit risk more systematically than in the current practice of macro stress testing. Our method quantifies the plausibility of scenarios by considering the distance of the stress scenario from an average scenario....

This paper identifies the main dimensions of capital regulation. We use survey data from 142 countries from the World Bank's (2013) database covering various aspects of bank regulation. Using multiple explorative factor analysis, we identify two main dimensions of capital regulation: complexity...

This study develops a multi-period structural model to value bank subordinated debt (subdebt) under different regulatory policies. The model provides a complete framework for analyzing how various factors, such as credit and interest rate risks, bank characteristics and regulatory policies...

Financial institutions may be vulnerable to predatory short selling. When the stock of a financial institution is shorted aggressively, leverage constraints imposed by short-term creditors can force the institution to liquidate long-term investments at fire sale prices. For financial...

The recent crisis has shown that systemically relevant banks in distress are likely to benefit from governmental support. This reduces their downside risk and leads to moral hazard, i.e. to incentives for these banks to assume excessive risks. In this paper we show empirically that implicit...

Systemic risk - the possibility that an individual firm's failure will result in broad damages to the economy as a whole - is the epitome of financial crisis. Bailouts of troubled firms have long been the standard response to systemic risk. Yet, bailouts suffer from problems of political...

The Regulation on the Single Supervisory Mechanism mandates the European Central Bank to exercise prudential supervision on the banks located in the Euro area, whether directly by the Bank’s own services for the significant banks, or indirectly by the national prudential supervisors but under...