We examine the impact of cross-border bank flows on recipient countries’ systemic risk. Using data on bank flows from 26 source countries to 119 recipient countries, we find that bank flows are associated with improved financial stability (i.e. lower systemic risk) in the recipient country. The impact of bank flows is stronger in recipient countries with weak regulatory quality and fragile bank...

This paper investigates macroeconomic effects of bank regulation in a continuoustime macro-finance framework with both bond-financing and bank-financing. Risky firms appreciate bank credit because banks are efficient at liquidating assets for troubled firms. However, risky firms must pay the risk premium for banks’ exposure to aggregate risks. Our framework captures the feature that the cost of...