The crypto boom and crash of 2020-22 demonstrated that (i) cryptocurrencies with fluctuating values are extremely risky and highly volatile assets, and (ii) cryptocurrencies known as “stablecoins” are vulnerable to systemic runs whenever there are serious doubts about the adequacy of...

Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross‐currency flows are large, the hedging cost...

Last decade's Dodd–Frank banking reform was a very costly and questionably effective effort to strengthen the U.S. banking system. A much simpler reform would be far more effective: require banks to hold much more shareholder equity against their liabilities. Banks would likely balk at this,...

The global economy changed dramatically ever since the US dollar ascended to the top position in the early 1940s as the world’s main reserve currency. As observed from recent events, the United States is both willing and very capable of taking unimaginable measures to defend American...

I propose a dynamic general equilibrium model in which strategic interactions between banks and depositors may lead to endogenous bank fragility and slow recovery from crises. When banks’investment decisions are not contractible, depositors form expectations about bank risk-taking and demand a...

We study public funding of banks and non-financial firms in a time of crisis. We find that bank capitalization is more effective in stabilizing the economy than direct funding to firms, but it also creates larger distortions. We show that the optimal, social-welfare-maximizing, structure of a...

Economic theories posit that bank liability insurance is designed as serving the public interest by mitigating systemic risk in the banking system through liquidity risk reduction. Political theories see liability insurance as serving the private interests of banks, bank borrowers, and...

New restrictions on short-selling sovereign debt need to be supported by concrete evidence that links systematically unrestricted short-selling activities to fraud, abuse or market manipulation. OECD debt managers noted that there is plenty of empirical evidence on the benefits of short selling,...

When central banks adjust interest rates, the opportunity cost of lending in local currency changes, but—in absence of frictions—there is no spillover effect to lending in other currencies. However, when equity capital is limited, global banks must benchmark domestic and foreign lending...

I propose a dynamic general equilibrium model in which strategic interactions between banks and depositors may lead to endogenous bank fragility and slow recovery from crises. When banks' investment decisions are not contractible, depositors form expectations about bank risk-taking and demand a...