We show that risk-mitigating incentives dominate risk-shifting incentives in fragile banks. We study security trading by banks, as banks can easily and quickly change their risk exposure within their security portfolio. For identification, we exploit different crisis shocks and supervisory...

This paper develops a dynamic theory of the interaction of organizational capacity and its institutional context. Higher capacity enables organizations to deliver projects efficiently, while institutional barriers allow opposing interests to reallocate project payoffs at the cost of delays....

We develop a new theory of information production during credit booms. In our model, entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources towards private consumption. Lenders can protect themselves from such diversion in two ways:...