We examine whether and how democratic procedures can achieve socially desirable public good provision in the presence of deep uncertainty about the benefits of the public good, i.e., when citizens are able to identify the distribution of benefits only if they aggregate their private information....

We examine the impact of so-called Crisis Contracts on bank managers' risktaking incentives and on the probability of banking crises. Under a Crisis Contract, managers are required to contribute a pre-specified share of their past earnings to finance public rescue funds when a crisis occurs....

We examine whether the central bank council of a monetary union should publish its voting records when members are appointed by national politicians. We show that the publication of voting records lowers overall welfare if the private benefits of holding office are sufficiently low. High private...

This paper studies the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully...

This paper provides a macroeconomic perspective for government interventions in banking crises. Such crises occur when a large number of banks fail to meet capital requirements or are insolvent. Using a macroeconomic model with financial intermediation, our analysis suggests that strict...

In a general equilibrium model we examine the optimal allocation of equity and debt across banks and industrial firms when both are plagued by incentive problems and firms can borrow from banks. Competition among banks will not result in a socially efficient level of equity. Imposing capital...

Starting from the Merton framework for firm defaults we provide the analytics and robustness of the relationship between default probabilities and default correlations. We then derive the implication of these results for the impact of macroeconomic shocks on credit portfolios, for the pricing of...

In this paper, we argue for a regulatory framework under which a bank's required level of equity capital depends on the equity capital of its peers. Such banking-on-the-average rules are transparent and could also be combined with the current regulatory framework. In addition, we argue that...

We examine banking competition when deposit or loan contracts contingent on macroeconomic shocks become feasible. We show that the risk allocation is efficient, provided that banks are not bailed out. In this case, banks may shift part of the risk to depositors. The private sector insures the...

We propose a flexible majority rule for central-bank councils where the size of the majority depends monotonically on the change in interest rate within a particular time frame. Small changes in interest rate require a small share of supporting votes, even less than 50%. We show that flexible...