Bank holding companies (BHCs) can be complex organizations, conducting multiple lines of business through many distinct legal entities and across a range of geographies. While such complexity raises the costs of bank resolution when organizations fail, the effect of complexity on BHCs’ broader risk profiles is less well understood. Business, geographic, and organizational complexity can engender explicit tradeoffs between the agency problems that increase risk and the diversification, liquidity management, and synergy improvements that reduce risk. The balance of outcomes may depend on the strength of bank governance. We test these conjectures using data on large U.S. BHCs for the 1996–2018 period. Business, geographic, and organizational complexity provide diversification benefits and some reduced idiosyncratic and liquidity risk exposure. All forms of complexity tend to increase BHC systemic risks. A regulatory tightening focused on complexity reduced organizational complexity, while also curtailing systemic risk but increasing liquidity risk.

Banks adjust loan spreads after observing natural disasters linked to climate change. We isolate this updating process by identifying loans to borrowers at risk of, but not directly affected by, such disasters. Loan spreads for these borrowers spike in both primary and secondary markets, while no such updating occurs for non–climate‐related disasters. Evidence suggests a heightened perceived credit risk, which nonetheless cannot fully explain the increase in rates. Taken altogether, increased spreads are explained primarily by salience bias, as they are short‐lived and amplified by media attention. This salience impacts financial decisions at bank‐dependent firms.

We use the text of financial stability reports (FSRs) published by central banks to analyze the relation between the sentiment they convey and the financial cycle. We construct a dictionary tailored specifically to a financial stability context, which classifies words as positive or negative based on the sentiment they convey in FSRs. With this dictionary, we construct financial stability sentiment (FSS) indexes for thirty countries between 2005 and 2017. We find that central banks’ financial stability communications are mostly driven by developments in the banking sector. Moreover, the sentiment captured by the FSS index explains movements in financial cycle indicators related to credit, asset prices, systemic risk, and monetary policy rates. Finally, our results show that the sentiment in central banks’ communications is a useful predictor of banking crises—a one percentage point increase in FSS is followed by a twenty-nine percentage point increase in the probability of a crisis.

Government support to banks through the provision of explicit or implicit guarantees affects the willingness of banks to take on risk by reducing market discipline or by increasing charter value. We use an international sample of rated banks and find that government support is associated with more risk taking by banks. More importantly, we find that restricting banks’ range of activities ameliorates the link between government support and bank risk taking. We conclude that, in the presence of moral hazard induced by government support, reducing bank complexity strengthens market discipline.

We analyze how two types of recently used prudential policies affected the supply of credit in the United States. First, we test whether the U.S. bank stress tests had any impact on the supply of mortgage credit. We find that initiation of the Comprehensive Capital Analysis and Review (CCAR) stress tests in 2011 had a negative effect on the share of jumbo mortgage originations and approval rates at stress-tested banks, whereby banks with worse capital positions were impacted more negatively. Second, we analyze the impact of the 2013 Supervisory Guidance on Leveraged Lending and subsequent 2014 FAQ notice, which clarified expectations on the Guidance. We find that the institution-specific share of speculative-grade term-loan originations decreased notably at regulated banks after the FAQ notice, especially at banks with greater market share for such loans.

Using a large sample of firms from 38 countries over the 2001–2012 period, this study finds evidence that, following the adoption of say on pay (SoP) laws, chief executive officer (CEO) pay growth rates decline and the sensitivity of CEO pay to firm performance improves. These changes are concentrated in firms with high excess pay and shareholder dissent, long CEO tenure, and less independent boards. Further, the portion of top management pay captured by CEOs is lower in the post-SoP period, which is associated with higher firm valuations. Overall, these results suggest that SoP laws are associated with significant changes in CEO pay policies.

We find that the leverage of primary dealers has predictive power in forecasting exchange rates, but that it varies by a novel type of heterogeneity, the dealer’s headquarter jurisdiction, and over time. The leverage of foreign-headquartered dealers in the U.S. drives the predictive power for exchange rates, while it is insignificant for U.S.-headquartered dealers. We propose this heterogeneity can be explained by the relative balance sheet capacity of foreign dealers compared to domestic dealers and how that capacity changes over time with regulation. Furthermore, we document that currency market positions are stronger than cross-border lending as the channel through which leverage affects exchange rates.

We use credit-arbitrage asset-backed commercial paper vehicles as a laboratory to empirically examine financial institutions’ motivations to take bad-tail systematic risk. By comparing the characteristics of global banks that sponsored credit-arbitrage vehicles prior to the global financial crisis to those that did not, we show that owner–manager agency problems, government safety nets, and government ownership of banks are associated with bad-tail systematic risk-taking. Although good governance is associated with less risk-taking on average, well-governed banks that also have a high ex ante expectation of being bailed out by the government take more risk. Lastly, we find mixed evidence that tougher bank capital regulation deters bad-tail risk-taking.

We analyze the impact of monetary policy on cross-border bank flows for a large sample of countries over two decades. We find evidence in favor of a cross-border risk-taking channel, as the monetary policy stance of source countries is an important determinant of cross-border bank flows. A relatively tighter monetary policy in source countries prompts banks to reallocate their lending toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for source countries with lower-capitalized banks. Also, the reallocation is directed toward foreign borrowers in relatively safer destinations, such as advanced economies or economies with investment-grade sovereign ratings.

European banks became a source of risk to global financial markets during the financial crisis and attention to the European banking sector increased during the sovereign debt crisis. To measure the systemic risk of European banks, we calculate a distress insurance premium (DIP), which integrates the characteristics of bank size, probability of default, and correlation. Based on this measure, the systemic risk of European banks reached its height in late 2011 around €500 billion. We find that this was largely due to sovereign default risk. The DIP methodology is also used to measure the systemic contribution of individual banks. This approach identifies the large systemically important European banks, but Italian and Spanish banks as a group notably increased in systemic importance during the sample period. Bank-specific fundamentals like capital-asset ratios predict the one-year-ahead systemic risk contributions.