In the context of the global market for syndicated bank loans, we provide evidence that the collapse of international markets during financial crises can in part be explained by a flight home effect. We show that the home bias of lenders' loan origination increases by approximately 20 percent if...

Toxic mortgage related assets in bank portfolios have tested the pervasive free market wisdom that markets can effectively discipline the risk taking behavior of financial firms. In the buildup to the current crises, banks over-leveraged themselves by investing in risky mortgage securities. In...