We study the impact of disclosure about bank fundamentals on depositors' behavior in the presence (and absence) of economic linkages between financial institutions. Using a controlled laboratory environment, we identify under which conditions disclosure is conducive to bank stability. We find...

This paper experimentally studies the impact of uncertainty about bank and borrower fundamentals on loan repayment. We find that solvent borrowers are more likely to default strategically when stricter disclosure creates common knowledge about bank weakness. Borrowers are also less likely to...

We conduct a laboratory experiment to examine under which circumstances a depositor-run at one bank may lead to a depositor-run at another bank. We implement two-person coordination games which capture the essence of the Diamond-Dybvig (1983) bank-run model. Subjects in the roles of followers...

The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk assets. We show that this undermines the traditional result that higher capital reduces excess risk-taking driven by limited liability. Moreover, higher capital may have an...

Traditional theory suggests that high franchise value limits bank risk-taking incentives. Then why did many banks with exceptionally valuable franchises get exposed to new financial instruments, resulting in significant losses during the crisis? This paper attempts to reconcile theory and...

We study how inflated credit ratings affect investment decisions in bond markets using experimental coordination games. Theoretical models that feature a feedback effect between capital markets and the real economy suggest that inflated ratings can have both positive and negative real effects....

Using a large dataset of firm-bank and ownership information for 23 European countries over 2008-2015, we study the dynamics of bank relationships after corporate acquisi tions and the effects of changing banks on firm performance. Foreign acquirers do not rely on internal capital markets but...

We study the impact of changes in recourse legislation on mortgage defaults. Romania provides us with an ideal experimental setting to identify this impact. Using a large dataset of mortgage loans granted between 2003 and 2016, we exploit an exogenous variation in Romanian recourse policy and...

Using a newly constructed database for 26 countries over 2000-2014, we analyze cross-country and within-country differences in mortgage arrears. We find that macro-prudential policies (notably regulatory LTV ratios) are significantly negatively associated with the share of mortgage arrears in...

This paper argues that a special bank bankruptcy regime is desirable for the efficient restructuring and/or liquidation of distressed banks. We first explore the principal features of corporate bankruptcy law. Next, we examine the specific characteristics that distinguish banks from other...