We develop a credit-risk based framework for macroprudential policy that treats systemic risk as the credit exposure of a policymaker to a portfolio of supervised banks. Using a structural credit model estimated from Credit Default Swap (CDS) prices, we derive the socially optimal capital buffers per bank by balancing the benefits of lower systemic risk against the economic costs of higher capital requirements through reduced credit supply. Applying this framework to Europe's systemic banks, we find that the market-based optimal buffers are substantially higher than those currently in use and vary significantly across institutions. Conditional on current country averages, within-country buffers are aligned close to optimally; suboptimality mostly arises from substantial differences between country averages.
Bank regulation focuses on spillovers from large banks to the banking system rather than risks from the banking system to banks. We document that traditional and trading activities affect the flow of systemic risk differently in each direction. We term this phenomenon asymmetric systemic risk, measure it, and explore the consequences and channels behind it. We show higher trading exposures and lower traditional activities underpin higher asymmetry of systemic-risk flows, which was associated with higher default risk during the 2008 crisis through increased profit volatility.
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.
This study examines the relationship between corporate board member qualifications and acquisition outcomes through the lenses of information asymmetry, monitoring, and resource dependence. By employing a factor-based director qualification framework that resolves into two distinct dimensions (Professional Leadership Capital and Human and Social Capital) alongside a comprehensive aggregate index across 14,951 U.S. acquisitions from 2000 to 2020, we observe that bidder boards characterized by diverse and extensive expertise, encompassing financial, legal, managerial, academic, and other fields, tend to co-occur with higher announcement-period returns, lower bid premiums, faster completion times, and higher deal success rates. Further analyses across various channels indicate that the association with announcement returns is particularly pronounced for R&D-intensive targets. In contrast, the association with lower bid premiums is concentrated among bidders with less powerful CEOs. We provide additional evidence using governance reforms, including the 2003 NYSE and Nasdaq listing standards and the staggered implementation of Dodd-Frank Say-on-Pay via the Smaller Reporting Company deferral, finding patterns consistent with board qualifications being more salient under stronger oversight regimes. Overall, our findings suggest that a multi-dimensional perspective on board qualifications provides valuable insights into acquisition outcomes and post-announcement performance patterns.
