We study the optimal design of clearing systems. We analyze how counterparty risk should be allocated, whether traders … should be fully insured against that risk, and how moral hazard affects the optimal allocation of risk. The main advantage of … centralized clearing, as opposed to no or decentralized clearing, is the mutualization of risk. While mutualization fully insures …

This paper shows that individual beliefs on the effectiveness of formal and informal sources of risk sharing determine … access to private risk sharing networks. Moreover, we find that both types of trust associate positively with the probability … to take on financial risk for the purpose of becoming a homeowner and the related loan-to-value ratio. Our findings are …

factor risk model, when augmented with reference returns, is capable of generating visually consistent return distributions …

increasing risk premia, and countercyclicality in response to rises in the risk-free rate. Using granular data on insurers …

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 …

European banks. In this paper, we evaluate the possible effects of these constraints on risk and diversification in the … analysis. We then analyse the risk and diversification in the sovereign bond portfolios of the largest European banks and … country. Finally, we evaluate the effect of diversification requirements on the tail risk of sovereign bond portfolios. Under …

implications of its risk-taking for the wider financial system and real economy. This paper provides empirical evidence for the … existence of widespread risk-taking incentives in the investment fund sector, with a particular focus on incentives for … synchronised, cyclical risk-taking which could have systemic effects. Incentives arise from the positive response of investors to …

The purpose of this paper is to investigate the main drivers of the change in the credit risk provisions at a portfolio … variables. Our results show that, although EBA variables explain most part of credit risk provisions, we obtain evidence about …/substitution effects of both bank- and portfolio-level variables with the characteristics of the banking sector when explaining credit risk …

reallocation by banks in response toregulatory reform. Simulations highlight a tension between concentration and credit risk … opportunity set to include an area-wide low-risk asset. Byreinvesting into such an asset, banks would reduce both their …