Failure in bank corporate governance has been seen as a contributing factor to excessive risk-taking pre-crisis with devastating implications as risks realised during the financial crisis. Unfortunately, the empirical evidence on the impact of managerial incentives on bank crisis performance is...

In the wake of the 2008 financial crisis, bank regulators are paying more attention to derivatives. In a move that can be seen as a step away from fair-value accounting, bank regulators (Basel III) have proposed to calculate bank leverage ratios using notional values, rather than fair values, of...

We show that eurozone bank risks during 2007-2013 can be understood as carry trade behavior. Bank equity returns load positively on peripheral (Greece, Italy, Ireland, Portugal, Spain, or GIIPS) bond returns and negatively on German government bond returns, which generated carry until the...

Macroprudential stress tests have been employed by regulators in the United States and Europe to assess and address the solvency condition of financial firms in adverse macroeconomic scenarios. Financial institutions are required to maintain a capital cushion against such events and stress tests...

We document that overcollateralisation of banks’ secured liabilities is positively associated with the risk premium on their unsecured funding. We rationalize this finding in a theoretical model in which costs of asset encumbrance increase collateral haircuts and the endogenous risk of a...

The failure to spot emerging systemic risk and prevent the current global financial crisis warrants a reexamination of the approach taken so far to crisis prevention. The paper argues that financial crises can be prevented, as they build up over time due to policy mistakes and eventually erupt...

We systematically analyse how network structure and bank characteristics affect solvency distress contagion risk in interbank networks. As interbank networks become more connected and more regular in structure, the contagion risk of system-wide shocks and individual bank defaults initially...

We empirically investigate the impact of shareholders' excess control rights (greater control than cash-flow rights) on bank profitability and risk before, during, and after the global financial crisis of 2007-2008. We use a unique hand-crafted dataset tracing the complete control chains of 788...

This paper empirically investigates how risk exposure of security holdings affected the optimal choice of total risk weighted asset under Basel II regulation. With costly recapitalization cost, banks optimally choose buffer regulatory capital above the minimum standard. Therefore, security...

We develop a novel approach to study how banks respond to fluctuations in the risk of panic-driven retail deposit withdrawals. To proxy for changes in withdrawal risk, we track online information acquisition about different brands of UK banks. We find that banks facing surges in information...