This paper examines four terms that are used a great deal by economists and demonstrates that they are often misunderstood. Not fully comprehending the meaning of these terms can result in serious problems for society. Thus, Greenspan admitted that not knowing how self-interest works resulted in...

The authors have developed an easy-to-use approach, derived from financial portfolio theory, for determining which product(s) to eliminate. This approach takes into account the effect the product deletion will have on the overall rate of return and the overall risk of the product portfolio

In a segmented waiting-line system, customers are segmented into two groups: those who are willing to wait for service and those who are willing to pay a premium to avoid a long wait. The use of waiting line segmentation has been shown to result in increased profit for the company or...

This paper discusses the institutional changes needed in Europe if prompt corrective action (PCA) is to be effective in supervising and resolving cross-border banking groups. The paper identifies these changes starting with enhancements in the availability of information on banking groups'...

Stress-tests provide complementary information about banks’ risk exposures. Recent empirical evidence, however, has uncovered potential inaccuracies in stress-test based assessments. We investigate the regulatory implications of these inaccuracies. Without stress-tests, the regulator cannot...

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures, regulators bail out creditors. Anticipation of this...

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures, regulators bail out creditors. Anticipation of this...

Litigation against a bank is indicative of misconduct risk because it suggests a failure to process customer complaints (EBA, 2014). This study examines the relationship between certain features of banks and potential and actual misconduct based on a panel of complaints submitted to the Italian...

This paper examines the association between bank liquidity creation and technological innovation. Using a comprehensive measure of bank output, I find that bank liquidity creation stymies technological innovation, measured by patent-based criteria. This is robust to using the...