ex-post aspect, in which the failure of a bank brings down a surviving bank as well, and second, the ex-ante aspect, in … which banks endogenously hold correlated portfolios increasing the likelihood of joint failure. When bank loan returns have … a systematic factor, the failure of one bank conveys adverse information about this systematic factor and increases the …

liability of banks and the presence of a negative externality of one bank’s failure on the health of other banks give rise to a … risk. Regulatory mechanisms such as bank closure policy and capital adequacy requirements that are commonly based only on a … bank’s own risk fail to mitigate aggregate risk-shifting incentives, and can, in fact, accentuate systemic risk. Prudential …

banks to park liquidity at the central bank rather than lend in the market. We show that following this structural break …, settlement bank liquidity had a precautionary nature in that it rose on calendar days with a large amount of payment activity and … for banks with greater credit risk. We establish that the liquidity demand by settlement banks caused overnight inter-bank …

paper introduces a measure of the threat that a bank poses to the system. Such a measure, called threat index, may be … individual institutions to the risk in the system. Although the threat index and the default level of a bank both reflect some …

privately-optimal level of bank leverage is neither too low nor too high: It efficiently balances the market discipline that … of leverage. However, when correlated bank failures can impose significant social costs, regulators may bail out bank … this also compromises market discipline by making bank debt too safe. Optimal capital regulation requires that a part of …