Banks' living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss...

This paper uses a Merton-type estimate of the probability of default (PoD) for the main banks in a sample of Organization for Economic Cooperation and Development and middle-income countries as a proxy for the fragility of their banking systems. Based on theory and stylized facts, the paper...

Macroprudential stress testing (MaPST) is becoming firmly embedded in the post-crisis policy-frameworks of financial-sectors around the world. MaPSTs can offer quantitative, forward-looking assessments of the resilience of financial systems as a whole, to particularly adverse shocks. Therefore,...

This paper examines the financial stability implications arising from securitization markets, with one eye on the past and another on the future. The paper begins by deriving a number of “lessons learned” based on an examination of key industry developments in the years before the crisis....

This paper defines a set of banking stability measures which take account of distress dependence among the banks in a system, thereby providing a set of tools to analyze stability from complementary perspectives by allowing the measurement of (i) common distress of the banks in a system, (ii)...

This paper develops a simple model of an international lender of last resort (ILOLR). The world economy consists of many open economies, each with a banking system and a central bank operating under a pegged exchange rate regime. The fragility of the banking system and the limited ability of a...

This paper develops a model of the lender of last resort. It provides an analytical basis for “too big too fail” and a rationale for “constructive ambiguity”. Key results are that if contagion (moral hazard) is the main concern, the Central Bank (CB) will have an excessive (little)...