We analyse credit market equilibrium when banks screen loan applicants. When banks have a convex cost function of screening, a pure strategy equilibrium exists where banks optimally set interest rates at the same level as their competitors. This result complements Broecker`s (1990) analysis,...

Not only in the classic Arrow-Debreu model, but also in many mainstream macro models, an implicit assumption is that all agents honour their obligations, and thus there is no possibility of default. That leads to well-known problems in providing an essential role for either money or for...

Securitisations usually involve creating multiple tranches of a single issue with different characteristics, placed on the market as separate securities. Various theoretical explanations have been advanced to explain such tranching. This paper provides the first systematic testing of such...

A fundamental role of financial markets is to gather information on firms` investment opportunities, and so help guide investment decisions in the real sector. We argue in this paper that firms` overinvestment is something necessary to induce speculators in financial markets to produce...

In 2002, a new legislation that harmonises insolvency laws within the EU came into effect. I find reasons - both theoretical and empirical - to doubt whether the new law has achieved the goal of decreasing the cost of cross-border insolvency and borrowing. I thus suggest an alternative approach...

Many institutional changes have taken place to payments systems. Indeed, they have been in continual change ever since money first emerged as the dominant technology for conducting transactions. Means of settlement between banks have changed: cheques replaced cash in many transactions, and they...

This paper suggests that in a monetary union: (i) fiscal policies should be delegated with optimal contracts, perhaps written over the deficit; (ii) policymakears would have no incentives to deviate by forming coalitions from the resulting equilibrium when exchange of information is allowed for....