We study bank default risk in a model with a competitive banking sector where banks lend to risky borrowers and adjust interest rates accordingly. Our main result is the following unconventional equilibrium relationship: a bank can be more likely to default with less risky borrowers than with...

This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some...

This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some...

The positive relationship between bank and sovereign credit risk in the Eurozone, the so-called sovereign-bank nexus, is seen as a major threat for the stability of the Eurozone. This paper explores potential bank-level and country-level drivers of this relationship. We find that banks' home...

We document that the dispersion of failure risk across banks within a given region in the U.S. is greater in regions that have higher income inequality. We explain this pattern with a model based on risk shifting incentives where banks issue insured deposits and choose the riskiness of their...

We document that the dispersion of failure risk across banks within a given region in the U.S. is greater in regions that have higher income inequality. We explain this pattern with a model based on risk shifting incentives where banks issue insured deposits and choose the riskiness of their...

We show that banks that are facing relatively high locally non-diversifiable risks in their home region expand more across states than banks that do not face such risks following branching deregulation in the United States during the 1990s and 2000s. Further, our evidence shows that these banks...

This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some...