Exposure to liquidity risk makes banks vulnerable to runs from both depositors and from wholesale, short-term investors. This paper shows empirically that banks are also vulnerable to run-like behavior from borrowers who delay their loan repayments (default). Firms in Italy defaulted more...

Our estimates treat the receipt of RFC assistance as an endogenous variable. We are able to identify apparently valid and powerful instruments (predictors of RFC assistance that are not directly related to failure risk) for analyzing the effects of RFC assistance on bank survival. We find that...

What determines risk-bearing capacity and the amount of leverage in financial markets? Using unique archival data on collateralized lending, we show that personal experience can affect individual risk-taking and aggregate leverage. When an investor syndicate speculating in Amsterdam in 1772 went...

Large crises tend to follow rapid credit expansions. Causality, however, is far from obvious. We show how this pattern arises naturally when financial intermediaries optimally exploit economic rents that drive their franchise value. As this franchise value fluctuates over the business cycle, so...

We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms...

We analyze a variant of the Diamond-Dybvig (1983) model of banking in which savers can use a bank to invest in a risky project operated by an entrepreneur. The savers can buy equity in the bank and save via deposits. The bank chooses to invest in a safe asset or to fund the entrepreneur. The...

We study how relationship lending and transaction lending vary over the business cycle. We develop a model in which relationship banks gather information on their borrowers, which allows them to provide loans for profitable firms during a crisis. Due to the services they provide, operating costs...

Looking back to the 1930s provides the opportunity to examine one severe mortgage crisis as we live through another. This paper examines the development of the residential mortgage market during the 1920s, the institutional disruptions that occurred in the 1930s and the policy response of...

In the late 1990s, several large Japanese banks failed for the first time in its postwar history. As the financial environment was deteriorating further, several remaining banks decided to merge among themselves, presumably, to make their operations more efficient to avoid failures. This paper...

Limited liability and asymmetric information between an investment bank and its lenders provide an incentive for a bank to undercapitalise and finance overly risky business projects. To counter this market failure, national governments have imposed solvency constraints on banks. However, these...