This paper proposes a continuous-time framework that explains some stylised facts in recent “twin crises” episodes. I show that access to the world capital market enables the domestic economy to achieve a more efficient allocation of resources. However, the banking sector becomes more fragile when this international borrowing is wealth-constrained. A temporary shock is amplified and becomes per...

In an effort to bolster soundness standards in banking, the 2006 international regulatory agreement of Basel II requires globally active banks to include operational risk in estimating regulatory and economic capital to be held against major types of risk. This paper discusses practical issues faced by a bank in designing and implementing an operational risk capital model. Focusing on the use o...

We propose a set of consistency conditions that frontier efficiency measures should meet to be most useful for regulatory analysis or other purposes. The efficiency estimates should be consistent in their efficiency levels, rankings, and identification of best and worst firms, consistent over time and with competitive conditions in the market, and consistent with standard nonfrontier measures o...

Methodologically, this paper frames the opportunity cost of any merger as the value of the alternative deals it precludes or defers. This challenges the standard eventstudy hypothesis that stock markets benchmark the value of a merger deal by the profits the partners would have earned in stand-alone activity. Substantively, the paper finds that megamergers in banking show two size-related excep...

We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when domestic banks are better than foreign banks at monitoring soft information customers, foreign bank entry may hurt these customers and worsen welfare. The model also predicts that credit to the private sector should be lower in countries with more foreign bank penetr...

We study the dynamics of market entry following mergers and acquisitions (M&As), and the behavior of recent entrants in supplying output that might be withdrawn by the consolidating firms. The data, drawn from the banking industry, suggest that M&As are associated with subsequent increases in the probability of entry. The estimates suggest that M&As explain more than 20% of entry in metropolita...

Increasing market discipline has emerged as a major policy issue for banking regulators. The most prominent proposals for increasing market discipline would require banks to issue subordinated debt to the public. This paper explores the fundamental rationale behind mandatory subordinated debt proposals and their advantages and disadvantages. Our analysis indicates that a subordinated debt requi...

In contexts where banks have strong control over firms, banking crisis may be associated with merger activity. This is because banks’ risk is reduced when their clients merge, and financial trouble creates strong incentive for banks to facilitate mergers of clients to improve banks’ risk standing. During Japan’s banking crisis in the 1990s, corporate merger activity was correlated with banks’ f...

There is a well-documented cross-country literature on the relationship between finance and growth. This paper contributes to this literature by analysing the relationships between financial intermediation and economic growth within the regions of one country, rather than different countries. The focus on regions is relevant since regional information is more homogeneous, the legal and institut...

'Cancer Research Campaign Department of Medical Oncology, Beatson Oncology Centre, Western Infirmary, Glasgow GIl 6NT; 2Department of Oncology, Belfast City Hospital, Belfast BT9 7AB; 3Department of Gynaecology, Glasgow Royal Infirmary, Glasgow G4 OSF; 4Department of Gynaecology, Western Infirmary, Glasgow GIl 6NT; 'Department of Gynaecology, Aberdeen Royal Infirmary, Aberdeen AB9 2ZB; 6Departm...