Private banks often blame state guarantees to distort competition by giving public banks the advantage of lower funding costs. In this paper I show that if borrowers perceive the public bank as supporting economic development, private banks may be able to separate firms by self selection, enter the market, and obtain profits in equilibrium despite their cost disadvantage. The public bank’s comp...

This paper investigates whether a bank regulator should terminate problem banks promptly or exercise forbearance. We construct a dynamic model economy in which entrepreneurs pledge collateral, borrow from banks, and invest in long-term projects. We assume that collateral value has aggregate risk over time, that in any period entrepreneurs can abscond with the projects but losing the collateral,...

Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex ante require costly crises to occur with positive probability at the interim stage. When bank payoffs are partially appropriable, either directly via imposition of fines or indirectly by the...

In this paper we study the impact of more transparency in the interbank market on the volume of bank intermediated loans and on the profitability of the banking business. Transparency is modeled by means of the informational content of publicly observable signals correlated to the random interbank interest rate. We find that more transparency may increase or decrease the volume of bank loans. I...

Using bank level data this paper examines how bank’s specific characteristics and the overall banking environment affect the profitability of commercial domestic and foreign banks operating in the 15 EU countries over the period 1995–2001. The results indicate that profitability of both domestic and foreign banks is affected not only by bank’s specific characteristics but also by financial mark...

In this article we first document the evidence showing how an efficient retail payment infrastructure enhances economic performance. We then review the policy tools available to promote efficient retail payments in Europe. We argue that while SEPA is an important policy initiative that harmonizes payment methods across the EU, it alone is not enough. Vigorous competition and consumer protection...

This paper compares the timeliness and accuracy of (confidential) government assessments of bank condition against market evaluations of large U.S. bank holding companies. We find that supervisors and bond rating agencies both acquire some information that would help the other group forecast changes in bank condition. In contrast, supervisory assessments and equity market indicators are not str...

The purpose of this paper is to examine the financing behaviour of Dutch corporations and its impact on firm performance. First, I present some stylised facts of corporate financing in the Netherlands. I show how the Dutch financial system differs from other major financial systems. Second, I analyse the valuation effect of different types of security offerings made by Dutch quoted firms. An ev...

We examine the roles of idiosyncratic and systemic funding liquidity risks in bank failures. We estimate a discrete-time hazard model of bank failure using data of U.S. commercial banks between 1985 and 2004, and examine its out-of-sample forecasting performance between 2005 and 2011. The out-of-sample performance comparison shows this model outperforms typical bank failure prediction models. W...

We study experimental coordination games to examine through which transmission channels, and under which information conditions, a panic-based depositor-run at one bank may trigger a panic-based depositor-run at another bank. We find that withdrawals at one bank trigger withdrawals at another bank by increasing players’ beliefs that other depositors in their own bank will withdraw, making them ...