We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, because borrowers may exogenously switch locations. Lenders, however, are also engaged in spatial competition, and lose market power by sh...

This paper investigates the effects of mortgage-backed securities (MBS) hedging activity on interest-rate volatility and proposes a model that takes these effects into account. An empirical examination suggests that the inclusion of information about MBS considerably improves model performance in pricing interest-rate options and in forecasting future interest-rate volatility. The empirical res...

In a general equilibrium model with risk neutral and risk averse agents, we show that if banks issue both demand deposits and equity, then free banking is run-proof and ecient. In particular, we obtain the ®rst best insurance solution if there is adequate risk neutral capital. If sucient risk neutral capital is unavailable, then a partial suspension of convertibility is optimal. In general, t...

We derive an exact nonlinear nonlocal macroscopic equation for the time evolution of the conserved order parameter rsr, td of a microscopic model binary alloy undergoing phase segregation: a d-dimensional lattice gas evolving via Kawasaki exchange dynamics, satisfying detailed balance for a Hamiltonian with a long range pair potential gdJsgjxjd. The macroscopic evolution is on the spatial scale...

There is a wide cross-country variation in the institutional structure of bank failure resolution, including the role of the deposit insurer. We use quantitative analysis for 57 countries and discussion of specific country cases to illustrate this variation. Using data for over 1,700 banks across 57 countries, we show that banks in countries where the deposit insurer has the responsibility of i...

Credit spreads display occasional spikes and are more strongly countercyclical in times of elevated financial stress. Financial crises extreme cases this nonlinear behavior, featuring skyrocketing credit spreads, sharp losses bank equity, deep recessions. We develop estimate a macroeconomic model with banking sector which banks’ leverage constraints occasionally binding equity issuance is endog...

This paper evaluates the literature on international unconventional monetary policies (UMPs). Introducing market segmentation, limits-to-arbitrage, and time-consistent policy in standard models permits a theoretical role for UMP. Empirical studies provide compelling evidence that UMPs influenced asset prices tail risk desired manner. Calibrated modeling vector autoregressive (VAR) exercises imp...

Private banks often blame state guarantees to distort competition by giving public banks the advantage of lower funding costs. In this paper I show that if borrowers perceive the public bank as supporting economic development, private banks may be able to separate firms by self selection, enter the market, and obtain profits in equilibrium despite their cost disadvantage. The public bank’s comp...

Is market-based or bank-based financial system better for fostering technological innovation as an engine of growth? I present evidence that bank-based systems promote rapid technological progress in those industrial sectors that depend heavily on external finance for funding innovation by facilitating credit access to younger firms. On the other hand, I also find evidence of a general positive...

The Basel 2 Accord requires regulatory capital to cover stress tests, yet no coherent and objective framework for stress testing portfolios exists. We propose a new methodology for stress testing in the context of market risk models that can incorporate both volatility clustering and heavy tails. Empirical results compare the performance of eight risk models with four possible conditional and u...