Many recent institutional reforms of the financial system have relied on the introduction of an explicit scheme of deposit insurance. This instrument aims at two main targets, contributing to systemic stability and protecting depositors. However, it may also affect the interest rate spread in...

This paper studies the optimal bankruptcy policy for repurchase agreements (repos) with respect to their exemption from the automatic stay of bankruptcy. The exemption from automatic stay has been one of the key contributors to the development of the repo market as a major source of funding for...

This paper develops a framework to study the interaction between banking, price dynamics, and monetary policy. Deposit contracts are written in nominal terms: if prices unexpectedly fall, the real value of banks' existing obligations increases. Banks default, panics precipitate, economic...

A role of CCPs that has been identified by policy makers as fostering liquidity and stability of OTC transactions, is to perform margin calls to adjust the available collateral posted for each participant's net position, following the marking to market of securities. In this framework, however,...

A model of credit and government debt with limited commitment is constructed, building on a Lagos-Wright construct. In the baseline equilibrium, global punishments support an efficient equilibrium in which government debt is neutral - there is Ricardian equivalence. In a symmetric equilibrium...

Dealers intermediate transactions between buyers and sellers in many markets. In particular this is true in nancial markets where many contracts are over-the-counter (OTC), especially derivatives: they are negotiated bilaterally and subject their users to the risk of counterparty default. Nearly...

policy of keeping prices constant eliminates the runs' trigger and prevents the economy from possibly switching to the run equilibrium. Deposit insurance would then not be necessary.

In an environment of Over-The-Counter trading with adverse selection we study traders' incentives to screen their counterparties under different clearing arrangements. When the clearing arrangement is also a choice, traders decide which types of transactions to clear under each arrangement, with...

Prior to 1863, state-chartered banks in the United States issued notes - dollar-denominated promises to pay specie to the bearer on demand. Although these notes circulated at par locally, they usually were quoted at a discount outside the local area. These discounts varied by both the location...

Prior to 1863, state chartered banks in the United States issued notes -- dollar-denominated promises to pay specie to the bearer on demand. Although these notes circulated at par locally, they usually were quoted at the discount outside the local area. These discounts varied by both the...