Based on a detailed trade-level dataset, we analyze the proprietary trading behavior of German banks in the months directly preceding and following the Lehman collapse in September 2008. The default of Lehman Brothers was a shock to the German banking system that was both unexpected and...

Liquidity supply by a Lender of Last Resort (LOLR) can be pivotal for both the conduct of monetary policy and safeguard of financial stability. During the financial crisis, the importance of liquidity provision has significantly increased at both the macro-level – through the European Central...

In a financial system where balance sheets are continuously marked to market, asset price changes show up immediately in changes in net worth, and elicit responses from financial intermediaries, who adjust the size of their balance sheets. We document evidence that marked to market leverage is...

This paper develops a model of the lender of last resort (LOLR). In a simple one-period setting, the Central Bank (CB) should only rescue banks which are above a threshold size, thus providing an analytical basis for "too big too fail". We also provide a rationale for "constructive ambiguity"....

The current global financial crisis has seen both substantial credit impairment and pronounced market illiquidity, undermining bank balance sheets and creating a global credit contraction. One consequence has been a dramatic shift in monetary transmission. Central banks can no longer closely...

This paper develops a model of the lender of last resort. It provides an analytical basis for too big too fail and a rationale for constructive ambiguity. Key results are that if contagion (moral hazard) is the main concern, the Central Bank (CB) will have an excessive (little) incentive to...

We study financial stability with constraints on central bank intervention. We show that a forced reallocation of liquidity across banks can achieve fewer bank failures than a decentralized market for interbank loans, reflecting a pecuniary externality in the decentralized equilibrium....

We quantify the causal effects of central banks' securities lending facilities on financial markets, using the Eurosystem's change in pricing conditions of November 2020 as a natural experiment. After reducing fees in their securities lending arrangements, utilization of securities lending...

The primary purpose of the study was to investigate the extent of financial integration between the four major money markets (Pakistan, India, Sri Lanka, and Bangladesh) in the SAARC region. To determine the association between these money markets, this study deployed variety of robust time...

The Basel Committee proposed the Net Stable Funding Ratio (NSFR) to curb excessive maturity mismatch of the banking sector. However, it remains to be ascertained as to what are the financial and real effects of the NSFR on banks' credit quality, investment, and the pass-through of monetary...