This paper addresses the trade-off between additional loss-absorbing capacity and potentially higher bank risk … increase their risk-taking. This increase in risk-taking however, should be more than outweighed by the benefits of higher …

We analyze optimal hedging contracts and show that although hedging aims at sharing risk, it can lead to more risk …-taking. News implying that a hedge is likely to be loss-making undermines the risk-prevention incentives of the protection seller …. This incentive problem limits the capacity to share risks and generates endogenous counterparty risk. Optimal hedging can …

, under-capitalized banks have an incentive to gamble on these bonds. The optimal reaction by depositors to insolvency risk …

riskiness of counter parties and issuers is endogenous to the central bank's credit policies and related risk control framework …

In this paper we study the impact of shocks to global risk and global risk aversion (such as Lehman) as well as shocks … securities which are consistently safe haven assets, namely experiencing portfolio inflows when risk is on the rise or perceived … in certain risk measures. We also find that the role of US-based crises and risk shocks is special, with the US not …

We offer a theory of financial contagion based on the information choice of investors after observing a financial …

I study rollover risk in the wholesale funding market when intermediaries can hold liquidity ex-ante and are subject to …

what are the implications for systemic risk and macro-prudential policy? This paper examines these issues with a model of … alternative banking strategy which involves greater risk-taking at the expense of being exposed to “fundamental runs” on the …-sale. During periods of stability, the shadow banking sector expands to an excessively large size that ferments systemic risk. Its …

leverage constraint. Coordination between monetary and macro-prudential policies helps to reduce the risk of entering into a …