Over the past two decades, Germany experienced several periods of banking system instability rather than full-blown banking system crises. In this paper we introduce a continuous and forward-looking stability indicator for the banking system based on information on all financial institutions in Germany between 1995 and 2010. Explaining this measure by means of panel regression techniques, we id...

This paper reviews the quantitative methods developed at selected authorities for stress testing credit risk, focusing in particular on the methods used to link macroeconomic drivers of stress with bank-specific measures of credit risk (macro stress test). Authorities with a mandate for financial stability are particularly interested in quantifying the macro-to-micro linkages and have developed...

The paper shows that time-consistent, imperfectly targeted support to distressed institutions makes private leverage choices strategic complements. When everyone engages in maturity mismatch, authorities have little choice but intervening, creating both current and deferred (sowing the seeds of the next crisis) social costs. In turn, it is profitable to adopt a risky balance sheet. These insigh...

The paper shows that time-consistent, imperfectly targeted support to distressed institutions makes private leverage choices strategic complements. When everyone engages in maturity mismatch, authorities have little choice but intervening, creating both current and deferred (sowing the seeds of the next crisis) social costs. In turn, it is profitable to adopt a risky balance sheet. These insigh...

The earlier 2007/2008 financial crisis generated the main lessons for monetary policy, notably that price stability does not necessarily guarantee financial stability. Nevertheless, the on-going Eurozone crisis has pointed to further lessons, notably that a single currency covering diverse states does need a Banking Union; and to problems of zero risk-weighting for sovereign debts. Without such...