Capital, Liquidity Standards and Macro Prudential Policy Tools in Financial Supervision: Addressing Sovereign Debt Problems

Liquidity, Government Bonds and Sovereign Debt Crises

This paper analyses the European financial crisis through the lens of the sovereign bond liquidity. Using novel data we show that government securities are the prime collateral in the European repo market, which is becoming a primary source of funding for the banking system in the Euro area. We document that the repo haircuts on peripheral government bonds sharply increased during the crisis, r...

Optimal Macro-Prudential and Monetary Policy∗

This paper addresses two main questions. First, it examines the implications of financial frictions, embedded in a New Keynesian DSGE model with a banking sector, for the conduct of welfare-optimal monetary policy. Assuming only one monetary instrument, we analyse how financial frictions affect the gains from commitment and how different are the optimized simple rules with and without financial...

Stefan Gerlach: Macro prudential policy in Ireland

Today I will talk about “Macro prudential policy in Ireland.” Unfortunately, recent financial sector developments across the world have shown the serious consequences of macro prudential policy failures. Thus, there is little doubt that, in Ireland and elsewhere, much attention must and will be paid in the future to ensuring that macro prudential frameworks are effective so that we can avoid ev...

crisis: in search of externalities for macro prudential supervision

Asset liquidity , capital structure , and secured debt $

This paper investigates the impact of asset liquidity on the valuation of corporate securities and the firm’s financing decisions. I show that asset liquidity increases debt capacity only when bond covenants restrict the disposition of assets. By contrast, I demonstrate that, with unsecured debt, greater liquidity increases credit spreads on corporate debt and reduces optimal leverage. The mode...