The circular economy (CE) is increasingly recognized as a financially material dimension of corporate sustainability, complementing and in some respects surpassing traditional Environmental, Social, and Governance (ESG) metrics. Building on prior evidence of a negative relationship between...

We argue that the rapid asset growth of nonbank financial intermediaries (NBFIs) relative to banks is the outcome of transformations of risks between banks and NBFIs that increase the interconnectedness of the two sectors. These transformations are consistent with avoiding tighter, post-GFC bank...

Using information from the ECB's Bank Lending Survey, we examine how the implementation of borrower-based macroprudential measures (BBMs) between 2009-Q1 and 2023-Q3 affected mortgage lending standards in a sample of 15 euro area countries. We find that banks generally tightened credit standards...

When default losses elevate borrowing costs, expanding credit cannot stabilize the economy because default rates feed back to lending rates through bank balance sheets. Asset management companies (AMCs) break this loop by purchasing nonperforming loans at their long-run recovery values, thereby...

Central clearing counterparties (CCPs) manage counterparty risk by requiring clearing members to post margins. This paper explores the role of margins as "canaries in the coal mine:" By inducing defaults of fragile counterparties before contract maturity, margin calls enable CCPs to transfer...

Under which conditions do usability constraints for regulatory capital buffers emerge? To answer this question, we build a non-linear structural banking sector model with a minimum capital requirement that banks are not allowed to breach, and a capital buffer requirement (CBR) that banks can...

This paper explores ways in which borrower-based measures (BBMs) could be applied to commercial real estate (CRE) lending, focusing on suitable metrics and scope. BBMs have already proven to be effective in mitigating credit risks in residential real estate lending by curbing excessive credit...

We use a novel data set containing all corporate loans throughout the Eurozone to document a series of novel stylized facts on the relationship between collateral and the probability of default. First, we show that the pervasive empirical finding that riskier borrowers pledge collateral is...

This study investigates credit unions' expansion into non-core lending and its association with risk and financial resilience. Using US credit union call report data from 1994 to 2024, we measure the share of purchased loans, lease receivables, and loans held for sale in non-core lending. We...

Banks often assume that higher credit limits increase customer default risk because greater exposure appears to imply greater vulnerability. This reasoning, however, conflates correlation with causation. Whether increasing a customer's credit limit truly raises the likelihood of default remains...

Conventional credit risk models understate tail risk by centering on mean default probabilities and neglecting distributional and sectoral heterogeneity. We propose a Quantile Probability of Default (QPD) framework based on unconditional quantile regressions estimated on flow default rates from...

Interpretability analysis methods, such as LIME and SHAP, are widely employed to explain the predictions of artificial intelligence models; however, they primarily function as post hoc tools and do not directly quantify the intrinsic interpretability of the models. Although it is commonly...

We develop a general equilibrium framework in which a commercial banker, constrained by capital adequacy requirements, creates a special purpose vehicle (SPV) to hold securitized assets off its balance sheet. By operating the bank and SPV as separate entities, the banker circumvents regulation,...

I study the credit channel of the electric-vehicle (EV) transition using more than 1.8 million German auto loans and leases. I show that EV financing contracts default significantly less often than comparable internal combustion engine vehicle (ICEV) contracts-particularly among lower-income...

The rapid expansion of small and medium enterprise (SME) lending has intensified the need for accurate and interpretable credit risk forecasting. Financial institutions must anticipate potential business loan delinquency to maintain portfolio stability and meet regulatory standards. This study...

Economic benefits of financial inclusion, meaning a broadening access of the population to financial services, have been studied extensively, but less is known about its potential effects on financial stability. We explore the complementarity between credit booms and episodes of rapid expansion...

Physical climate risks significantly influence banks' collateral practices. Drawing on comprehensive loan-level data from Sweden, we find that adverse weather events increase both the likelihood and the amount of collateral required for new loans. For existing loans, banks are less inclined to...

This paper investigates credit risk management as a dynamic system. Panel Vector Autoregression (PVAR) is employed to model interrelationships among four key components: Non-Performing Loans (NPLs), Loan Loss Provision (LLP), loan charge-off (LCO) and capital. The Cost-to-Income ratio (CIR) and...

Banks use synthetic risk transfers (SRTs) to offload potential losses in their loan portfolios to non-bank investors while retaining the loans on their balance sheets. We investigate this trillion-euro market using transaction-level data from the euro area, the largest SRT market, and highlight...

Financial technology (FT) has been credited for supporting sustainable development and financial inclusion. However, issues such as balancing innovation with consumer protection and the challenges of loan default have emerged as significant concerns in this context. The study aimed to test the...

Repo markets clear either bilaterally over the counter (OTC) or through central counter-parties (CCPs), which differ in how counterparty risk is priced. In bilateral markets, repo rates reflect borrower-specific risk, while CCP clearing pools counterparties and applies a common pricing rule. We...

This article provides a novel insight into whether earnings manipulation signals are reflected in banks' internal credit risk estimates, as measured by the probability of default (PD) estimates, and whether such manipulation has an impact on credit risk (point in time or deferred). The...

This study evaluates the early impact of Central Bank Digital Currencies (CBDCs) on key financial indicators in The Bahamas, focusing on the introduction of the SandDollar-the world's first fully implemented retail CBDC. Using the Synthetic Control Method (SCM), the analysis constructs...

This study develops a machine learning framework to improve the prediction of automobile loan defaults by integrating explainable feature selection with advanced resampling techniques. Using publicly available data, we compare Logistic Regression, Random Forest, eXtreme Gradient Boosting...

This study investigates the nonlinear and regime-dependent relationship between climate policy uncertainty (CPU) and sovereign credit default swap (CDS) spreads across a panel of developed and emerging economies from February 2010 to March 2025. Utilizing the Quantile-on-Quantile Regression...

The paper empirically analyses the factors responsible for non-performing assets (NPAs) in India's banks, with a focus on bank-specific factors or determinants. Panel estimation of a total sample of 43 Indian banks, comprising 20 public sector banks (PSBs), 18 domestic private banks, and 5...

External ratings (agency ratings) and internal ratings were already in use before Basel II, as powerful management tools. Basel II "adopts" them (the former in the Standard approach, the latter in the IRB approaches) in a productive way: internal ratings represent the final summary of the...