This paper develops a structural, dynamic model of a banking firm to analyze how banks adjust their loan portfolios over time. In the model, banks experience capital shocks, face uncertain future loan demand, and incur costs based on their proximity to regulatory minimum capital requirements....

This paper examines the likelihood that failure of one bank would cause the subsequent collapse of a large number of other banks. Using unique data on interbank payment flows, the magnitude of bilateral federal funds exposures is quantified. These exposures are used to simulate the impact of...

We analyze how price discovery in the inter-dealer market for U.S. Treasury securities differs during stressful times from normal periods. We distinguish between three forms of stress: intense trading activity, asymmetric depth and market maker risk aversion. Using tick-by-tick data on...

We investigate the information content of inter-transaction time and find that it varies both across stocks and over time. On average, inter-transaction time is found to be informative whenever stocks are sufficiently traded. The magnitude of the information content is found to be larger for...

This paper develops a model of bank reserve management and federal funds rate determination that incorporates the role of interbank payments. In the model, uncertainty in the receipt of payments generates a precautionary demand for bank reserves as banks face both reserve requirements and...

Risk premia on overnight interbank loans increase by a factor of 13 at year-end. Further, this finding is not consistent with common theories of similar year-end anomalies in other money markets. In particular, seasonal liquidity demands seem to explain only a fraction of the effect. Although...

This paper studies the influence of the state of the business cycle on credit ratings. In particular, we assess whether rating agencies are excessively procyclical in their assignment of ratings. Our analysis is based on a model of ratings determination that takes into account factors that...

This study examines the level of unsecured borrowing done by the firms that would ultimately rescue Long-Term Capital Management in the days leading up to the hedge fund's rescue. Although there is some evidence that these banks borrowed less at the height of the crisis, further examination...

Predictable patterns in the level and volatility of interbank payments match those found in the daily federal funds rate. This paper develops a structural model of bank reserve management that rationalizes this finding. Implications of the model are then estimated using a panel of large banking...

This study examines the level of unsecured borrowing done by the firms that ultimately rescued Long-Term Capital Management in the days leading up to the hedge fund's rescue. Although these banks borrowed less at the height of the crisis, evidence suggests that this reduction in borrowing was...