Knowledge that Transforms

This study examines whether programmable spreads, defined as the difference between decentralized finance smart-contract lending rates and U.S. Treasury-Bill benchmarks, contain forward-looking information about liquidity stress and risk aversion. Using data from major stablecoin lending markets, it finds that programmable spreads are associated with subsequent financial tightening and contain statistically significant forward-looking information regarding future changes in U.S. financial conditions. Wider spreads also forecast higher future excess returns in equity and bond markets, consistent with the predictive relationships implied by time-varying risk premia. These relationships hold both in sample and out of sample and are strongest at short horizons. Moreover, these findings suggest that programmable spreads may serve as high-frequency, complementary market-based indicators of funding stress and information associated with time-varying risk aversion.

Financial crises can generate aggregate losses that substantially exceed the losses associated with the shocks that initiate them. This paper develops a framework in which systemic losses consist of baseline losses and additional amplification losses arising from capacity-constrained public financial infrastructure. Financial activity places demands on supervisory, informational, settlement, and coordination capacity. A canonical capacity-congestion mechanism implies that congestion rises increasingly sharply as financial activity approaches effective infrastructure capacity, generating nonlinear amplification losses. Because these losses occur in adverse states, they increase consumption losses when marginal utility is high and raise required equity returns when equity payoffs are weak in the same states. The paper also studies a stylized funding mechanism—Market Usage Fees (MUFs)—under which publicly listed firms contribute a fraction of operating income to finance public financial infrastructure. MUFs reduce distributable income but expand infrastructure capacity, lower amplification risk, and reduce required returns. When the marginal discount-rate benefit initially exceeds the income cost of the fee, the interaction generates a non-monotonic valuation response and an interior value-maximizing contribution rate.

This paper identifies a novel channel—corporate fraud—through which local firms protect themselves during anti-mafia periods. We initially explore the impact of the anti-mafia campaign on mafia-like forces captured by accepted mafia-like criminal cases. The results indicate that the average number of accepted mafia-like criminal cases increases by 10.03%. More importantly, the accepted mafia-like criminal cases committed by firms also exhibit a notable increase, mainly within the first 30 months of the anti-mafia campaign. We then theorize that the anti-mafia campaign may have two contradictory effects on corporate fraud: deterrence and self-protection. The main results show that the self-protection effect prevails over the deterrence effect and that firms are more likely to commit fraud to strategically protect themselves from potential losses. The baseline findings reveal that the fraud occurrence of an average firm increases by 44.07% during anti-mafia periods.

We examine whether the European Central Bank (ECB) President’s communication tone is systematically related to market-based measures of euro area bank risk. Using Loughran–McDonald dictionaries, we construct quarterly indicators of textual tone and readability from ECB presidential statements over 2008Q1–2024Q4. We link these indicators to country-level bank credit default swap (CDS) indices for euro area member states. Our analysis focuses on uncertainty-related and constraining language as communication dimensions especially relevant to financial stability. We estimate panel regressions with macro-financial controls, horse-race specifications, and deploy principal component analysis to distinguish overlapping sentiment dimensions, with additional robustness checks in first differences. A more uncertainty-laden and constraining ECB presidential tone is associated with higher bank CDS spreads, even after controlling for macro-financial fundamentals. Lower readability of ECB statements is likewise linked to greater bank stress, indicating that both the tone and the clarity of central bank communication matter for bank-risk pricing. The association between bank CDS spreads and ECB communication tone is more pronounced during turbulent than tranquil periods. Our findings are consistent with a sentiment-guidance channel through which central bank communication is reflected in perceptions of bank fragility beyond traditional policy and macro-financial factors. They indicate that the tone, complexity, and crisis-contingent framing of ECB communication are economically relevant for financial-stability pricing and the sovereign-bank nexus in the euro area.

This study investigates the impact of skilled labor mobility on bank fragility. We construct a novel bank-level measure of skilled labor mobility using job-posting data and show that it significantly increases bank default probability. The effect is driven entirely by demand for risk officers, identifying risk management capacity as the specific mechanism. The effect is amplified by competition and is concentrated among banks experiencing net employee outflows. We further document that legal restrictions on labor mobility weaken the potential detrimental effect. Our findings indicate that skilled labor mobility exacerbates bank fragility, yet targeted policies can bolster resilience against possible adverse effects from labor market frictions.