The 2008 financial crisis is the worst economic crisis since the Great Depression of 1929. It has been characterised by a housing bubble in a context of rapid credit expansion, high risk-taking and exacerbated financial leverage, leading to deleveraging and credit crunch when the bubble burst....

Since World War II, direct stock ownership by households has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with...

Following the financial crisis of 2008/9, there has been renewed interest in what Greenwald and Stiglitz dubbed ‘pecuniary externalities’. Two that affect borrowers and lenders balance sheets in pro-cyclical fashion are described, along with measures that might help curb their destabilising...

Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a...

This paper studies the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully...

The financial intermediation sector is important not only for channeling resources from agents in excess of funds to agents in need of funds (lending channel). By issuing liabilities it also creates financial assets held by other sectors of the economy for insurance purpose. When the...

Banking crises are usually followed by a decline in credit and growth. Is this because crises tend to take place during economic downturns, or do banking sector problems have independent negative effects on the economy? To answer this question we examine industrial sectors with differing needs...

This paper focuses on bank rescue packages and on the behaviour of troubled banks in light of rescue offers. A puzzling feature of experience with banking crises is that in many cases policy authorities make offers of bank rescue, and banks are reluctant to accept these offers. We study...

Conventional wisdom holds that overlending problems and banking crises in open economies are provoked by investor moral hazard, which is caused in turn by guarantees on deposits. This Paper shows that this is not necessarily the case: guarantees on deposits may even limit the losses banks...