We shed light on the narrative that listing contributes to risk-taking by examining the risk characteristics of listed BHCs, small enough to be private, against a sample of comparable private BHCs, large enough to be listed, over the 1987–2019 period. We measure our proxies for risk characteristics over different intervals in the sample period to account for the effect of new regulations and variation in the intensity of information production by regulators, markets, and financial firms. We document that listed banks are riskier than private banks over the 22-year sample period. Examining the subperiods, we find that listed banks are riskier than private banks before the crisis, but they may not be as risky following the crisis. While risk increases for all banks during the crisis, the increase in risk for listed banks during the crisis is greater than that for private banks. Our findings are both statistically and economically significant and suggest that financial reforms and regulatory expectations facing banks post-crisis might have contributed to the risk reduction for listed banks relative to private banks

The regulatory dialectic describes the dynamic process of banks and regulators continuously acting and reacting to one another. We provide empirical evidence of the regulatory dialectic in the prime institutional money market fund (PI-MMF) industry. Regulations on commercial deposits fueled growth in bank-sponsored PI-MMFs as a form of shadow banking in a relatively less regulated market. Re-regulation following the 2008 financial crisis halted this rapid growth, and the industry shifted from PI-MMFs to government institutional MMFs. We conjecture that this dialectical process will continue, and the decline of the PI-MMF may engender a shift toward structurally similar products, like stablecoins

The 2023 banking turmoil highlighted how technological advancements have significantly accelerated the speed of bank runs. This paper investigates the impact of these faster bank runs on the effectiveness of policy interventions by interpreting them as a constraint on the relative speed of policy responses. Using a model of bank runs and ex-post policy responses, we examine how delays caused by this constraint affect financial fragility and welfare. We find that while delays exacerbate welfare loss by distorting allocations, they may also decrease fragility by making banks more cautious. We study the optimal level of structural delay, balancing the trade-off between distributional distortions and financial fragility. Furthermore, we extend this model to explore the roles of liquidity regulations and capital injections given such a delay. We show that regulation may be more desirable than a capital injection if the delay is substantial because the benefit of decreased fragility is particularly potent

This paper analyzes financial contagion in a banking system where banks are linked to each other by interbank claims and common assets. We find that asset commonality makes banking systems more vulnerable to idiosyncratic liquidity shocks and helps to determine which interbank network structures are resistant to contagion. When the degree of commonality is homogeneous across banks, the complete interbank network, in which each bank borrows evenly from all the others, displays the usual robust-yet-fragile property. However, in the more general case of heterogeneous common asset holdings the complete interbank network is less resilient than other incomplete networks but not necessarily the most fragile. We also show that the degree and variability of asset commonality between banks and the way this intertwines with the cross-holdings of interbank deposits have important implications for macroprudential regulation

We study how regulation shapes the interaction between financial fragility and bank liquidity management, and propose a rationale for the complementarity between bank recovery and resolution planning. To this end, we analyze an economy in which a resolution authority arranges a bank resolution plan to suspend deposit withdrawals and create a “good bank” at a cost in the event of a depositors’ run. In such a framework, banks find it optimal to establish recovery plans in advance, specifying how to manage liquidity during runs. However, such plans are time inconsistent, and resolution authorities need powers to force their implementation at times of financial fragility

We extend the Schumpeter meeting Keynes (K+S) agent-based model by introducing an evolving interbank network in the money market. Banks are exposed to counterparty risk and evaluate interbank positions using a network valuation (NEVA) clearing mechanism, which ensures systemic risk minimization with minimal assumptions on banks’ behavior. The model can replicate several stylized facts about the topology of the interbank network and the dynamics of banks’ balance sheets. The model encompasses financial contagion and systemic risk, allowing us to study the interactions between micro- and macro-prudential policies. Our results suggest that the introduction of a micro-prudential regulation also accounting for the network structure can reduce the incidence of systemic risk events. We also find that, in presence of a two-pillar regulatory framework – grounded on a Basel III macro-prudential regulation and a NEVA-based micro-prudential one –, there is no trade-off between financial stability and macroeconomic performance. This points towards the possibility of designing a regulatory framework able to achieve financial stability without overly stringent capital requirements

To rationalize the increased use of capital flows regulations in recent times, we study the capacity of capital flow management measures (CFMs) to insulate an economy from external shocks. We examine the extent to which CFMs mitigate the effects of US monetary shocks and whether measuring this mitigation at the net or gross level of flows matters. Our analysis is carried out for a panel of emerging market economies and for different disaggregations of the flows. Our results indicate that the level of aggregation matters for evaluating the effects of CFMs, and that analyses with excessively aggregated flows or with only net measures may lead to biases in assessing the insulation features of the CFMs. Furthermore, CFMs have insulation properties that mitigate capital repatriations; however, these are mostly related to risky portfolio and banking flows

This paper investigates the impact of country-level governance on corporate investment efficiency using data from Indian-listed firms between 2009 and 2022. Additionally, we explore how country-level governance interacts with firm-level corporate governance to influence investment inefficiency. Using World Bank's worldwide governance indicators, our findings from panel econometric models reveal that country-level governance and its subcomponents (political stability, government effectiveness, regulatory quality, rule of law, control of corruption, and voice and accountability) negatively affect investment inefficiency, underinvestment, and overinvestment. This suggests that robust governance at country-level serves as a control mechanism, reducing companies' likelihood of investing above or below optimal levels. Furthermore, we find that the effect of firm-level corporate governance (measured using a newly constructed governance index) on investment inefficiency is more pronounced in weak country-level governance environments, indicating a substitutive relationship. Similar patterns are observed in overinvestment and underinvestment scenarios. This evidence implies that when country-level governance is inadequate in mitigating agency conflicts and information asymmetries, firm-level corporate governance mechanisms become crucial for promoting investment efficiency. The robustness of our results is ensured through various methodological approaches. Sample selection bias is addressed using entropy balancing, while endogeneity concerns are mitigated with a combination of two-stage least squares, firm fixed effects, and a two-step generalized method of moments. Additionally, our findings remain consistent when using different proxies for both dependent and independent variables. Our empirical investigation provides valuable insights for regulators, policymakers, and corporate stakeholders in developing efficient investment policies