Financial crises are endogenized through corporate and interbank market institutions. Single-bank financing leads to a pooling equilibrium in the interbank market. With private information about one’s own solvency, the best illiquid banks will not borrow but rather will liquidate some...

This paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy and firms use non-bank finance, including trade credits...

This paper endogenizes financial contagion and financial crises from financial institutions. We show that financial crises can emanate from financial institutions which generate soft-budget constraints (SBC). The prevailing SBC in an economy distort information such that the interbank lending...