This paper provides an overview of stress-testing methodologies in Europe, with a focus on the advancements made by the European Central Bank's Financial Stability Committee Working Group on Stress Testing (WGST). Over a four-year period, the WGST played a pivotal role in refining stress-testing...

The internal organization of global banks potentially plays a vital role in the transmission of shocks both within and across borders. The analysis of this transmission is of importance for regulators and policy makers. In this paper, we investigate how solvency and wholesale funding shocks to...

Model-based capital regulation is considered to be one of the key innovations of Basel II. The objective of this innovation was to make capital charges more sensitive to risk. Using data from the German credit register, and employing a difference-indifference identification strategy, we...

The paper argues that the incidence of moral hazard played a significant role in the 2007/2008 credit crunch. In particular, bank traders subjected to asymmetric compensation structures have an incentive to take excessive risks even when the bank's shareholders would prefer prudent investment....

In this paper we consider a moral hazard problem between a creditworthy firm which needs funding and a bank. We first study under which conditions the firm does not obtain the loan. We then determine whether and how the intervention of an external financial institution can facilitate the access...

Current empirical methods to identify and assess the impact of bank credit supply shocks rely strictly on multi-bank firms and ignore firms borrowing from only one bank. Yet, these single-bank firms are often the majority of firms in an economy and most prone to credit supply shocks. We propose...

We find that increases in lending by Japanese Government Owned Bank (GOB) during the crisis in early 1990's had a strong incremental impact on firm level investment, especially for credit constrained firms. Firms have better future accounting performance when their investment is associated with...

This paper assesses the usefulness of private credit variables and other macrofinancial and banking sector indicators for the setting of Basel III/CRD IV countercyclical capital buffers (CCBs) in a multivariate early warning model framework, using data for 23 EU Members States from 1982 Q2 to...

In this study, we examine the effects of foreign branch activity on commercial banks in the Central, Eastern, and Southeastern European countries for the period 1995-2015. We show that more foreign bank branches are present in countries that have higher taxes and regulatory restrictions on bank...

We use a quasi-experimental research design to examine the effect of model-based capital regulation introduced under the Basel II agreement on the pro-cyclicality of bank lending and firms' access to funds during a recession. In response to an exogenous shock to credit risk in the German...