Determinants of US Financial Fragility Conditions

Determinants of banking fragility

Governance and Financial Fragility

Bailouts and Financial Fragility

Should policy makers be prevented from bailing out investors in the event of a crisis? I study this question in a model of financial intermediation with limited commitment. When a crisis occurs, the policy maker will respond by transferring resources to those investors facing losses. The anticipation of such a “bailout” distorts ex ante incentives, leading intermediaries to become excessively i...

A Model of Financial Fragility

This paper presents a dynamic, stochastic game-theoretic model of financial fragility. The model has two essential features. First, interrelated portfolios and payment commitments forge financial linkages among agents. Second, iid shocks to investment projects’ operations at a single date cause some projects to fail. Investors who experience losses from project failures reallocate their portfol...

Savings Gluts and Financial Fragility∗

We investigate the effects of an increase in liquidity (a “savings glut”) on the incentives to originate high quality assets, and on the fragility of the financial sector. Originators incur private costs when originating high quality assets. Assets are subsequently distributed in two markets: A private market where informed intermediaries operate, and an exchange where uninformed investors trad...