In a Diamond–Dybvig type model of financial intermediation, we allow depositors to announce at a positive cost to subsequent depositors that they keep their funds deposited in the bank. Theoretically, the mere availability of public announcements (and not its use) ensures that no bank run is the unique equilibrium outcome. Multiple equilibria—including bank run—exist without such public announcements. We test the theoretical results in the lab and find a widespread use of announcements, which we interpret as an attempt to coordinate on the no bank run outcome. Withdrawal rates in general are lower in information sets that contain announcements.

We examine the incentive effects of funding contracts on entrepreneurial effort and on allocative efficiency. We experiment with funding contracts that differ in the structure of investor repayment and, thus, in their incentives for the provision of entrepreneurial effort. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces effort distortions and increases efficiency. Likewise, distortions can be mitigated by replacing outside equity by a repayment-equivalent standard-debt contract. We test both hypotheses in the laboratory. Our results reveal that the incentive effects of funding contracts must be experienced before they are reflected in observed behavior. With sufficient experience, observed behavior is either consistent with or close to theoretical predictions and supports both hypotheses. If we allow for entrepreneur-sided manipulations of project outcomes, we find that non-monotonic contracts lose much of their appeal.

We perform an experiment on a pure coordination game with uncertainty about the payoffs. Our game is closely related to models that have been used in many macroeconomic and financial applications to solve problems of equilibrium indeterminacy. In our experiment, each subject receives a noisy signal about the true payoffs. This game (inspired by the “global” games of Carlsson and van Damme, Econometrica, 61, 989-1018, 1993) has a unique strategy profile that survives the iterative deletion of strictly dominated strategies (thus a unique Nash equilibrium). The equilibrium outcome coincides, on average, with the risk-dominant equilibrium outcome of the underlying coordination game. In the baseline game, the behavior of the subjects converges to the theoretical prediction after enough experience has been gained. The data (and the comments) suggest that this behavior can be explained by learning. To test this hypothesis, we use a different game with incomplete information, related to a complete information game where learning and prior experiments suggest a different behavior. Indeed, in the second treatment, the behavior did not converge to equilibrium within 50 periods in some of the sessions. We also run both games under complete information. The results are sufficiently similar between complete and incomplete information to suggest that risk-dominance is also an important part of the explanation.

We use experimental methods to evaluate a simplified interbank market. The design is a laboratory adaptation of the analysis of interbank market fragility by Allen and Gale (J Eur Econ Assoc 2:1015–1048), and features symmetric banks who allocate deposit endowments between cash and illiquid assets prior to the incidence of a shock. Following the shock liquidity-deficient banks trade assets for cash. Treatments include variations in the shock type, as well as alterations in the range of permissible asset prices. Consistent with Allen and Gale, we find that while interbank trading substantially increases investment activity, the markets are frequently characterized by price variability and a stochastic distribution of investment outcomes.

We study factors influencing individuals’ decisions to purchase Citibank stock during the 1920s. Familiarity was an important positive influence (measured outside New York by branch presence, and within New York, by network connections to existing owners). Within New York, wealth, knowledge, and one's influence within the New York City Business network also increased the probability of becoming a Citibank shareholder. The role of some network influences, like other identifiable influences, became less important during the price boom of the late 1920s, perhaps reflecting the rising importance of other means of increasing familiarity during the price boom (i.e. media coverage).

We propose a simple indicator for the climate-related transition risks of bank lending based on transaction-level loan data. The underlying idea is that the higher the greenhouse gas intensity of an economic activity, and thus that of the debtor involved, the higher its transition risk. The relationship is mapped through two min-max-normalised functions, each of which represents a scenario for the future characteristics of the green transition. The concept is versatile and applicable to different dimensions at different levels of aggregation (banking system or individual banks, whole economy or specific sectors). As a practical example, we discuss the proposed indicator using Hungarian data for the period 2012–2020.

In 1962, Spain implemented significant banking law changes to boost competition. This study investigates their impact on provincial banking concentration from 1964 to 1975, utilising novel provincial-level private bank balance sheet data and including savings banks. Results show a substantial decline in concentration across most provinces. Panel data models identify the determinants of banking concentration: larger populations and higher gross domestic product per capita correlate with lower concentration, while agrarian-focused provinces exhibit higher concentration. The provincial financial sector's structure also matters, with a higher number of branches and headquarters per capita associated with reduced banking concentration. These findings refine existing literature and provide new insights into the intricate relationship between banking concentration and regional economies in Spain.

This article studies how sudden changes in bank credit supply impact economic activity. I identify shocks to bank credit supply based on firms’ aggregate debt composition. I use a model where firms fund production with bonds and loans. In the model, bank shocks are the only type of shock that imply opposite movements in the two types of debt as firms adjust their debt composition to new credit conditions. Bank shocks account for a third of output fluctuations and are predictive of the bond spread.

Is the working capital channel big, and does it vary across industries? To answer this question, I estimate a dynamic stochastic macro-finance model using firm-level data. In aggregate, I find a partial channel —about three-fourths of firms’ labor bill are borrowed. However, the strength of this channel varies across industries, reaching as low as one-half for retail firms and as high as one for agriculture and construction. This provides evidence that monetary policy could have varying effects across industries through the working capital channel.

In the traditional multidimensional credibility models developed by Jewell ((1973) Operations Research Center, pp. 73–77.), the estimation of the hypothetical mean vector involves complex matrix manipulations, which can be challenging to implement in practice. Additionally, the estimation of hyperparameters becomes even more difficult in high-dimensional risk variable scenarios. To address these issues, this paper proposes a new multidimensional credibility model based on the conditional joint distribution function for predicting future premiums. First, we develop an estimator of the joint distribution function of a vector of claims using linear combinations of indicator functions based on past observations. By minimizing the integral of the expected quadratic distance function between the proposed estimator and the true joint distribution function, we obtain the optimal linear Bayesian estimator of the joint distribution function. Using the plug-in method, we obtain an explicit formula for the multidimensional credibility estimator of the hypothetical mean vector. In contrast to the traditional multidimensional credibility approach, our newly proposed estimator does not involve a matrix as the credibility factor, but rather a scalar. This scalar is composed of both population information and sample information, and it still maintains the essential property of increasingness with respect to the sample size. Furthermore, the new estimator based on the joint distribution function can be naturally extended and applied to estimate the process covariance matrix and risk premiums under various premium principles. We further illustrate the performance of the new estimator by comparing it with the traditional multidimensional credibility model using bivariate exponential-gamma and multivariate normal distributions. Finally, we present two real examples to demonstrate the findings of our study.

Modern financial crises are difficult to explain because they do not always involve bank runs, or the bank runs occur late. For this reason, the first year of the Great Depression, 1930, has remained a puzzle. Industrial production dropped by 20.8 percent despite no nationwide bank run. Using cross-sectional variation in external finance dependence, we demonstrate that banks’ decision to not use the discount window and instead cut back lending and invest in safe assets can account for the majority of this decline. In effect, the banks ran on themselves before the crisis became evident.

In the follow-up to the 1926 political and monetary crisis in France, a new government led by Raymond Poincaré attempted to restore monetary stability by restructuring public debt. A sinking fund was missioned to withdraw short-term public bills from money markets. This policy disorganized the largest Parisian banks of the time, as they relied on these bills to manage their liquidity. Without developed domestic money markets, no other asset could absorb the excess liquidity freed by the withdrawal of these bills, and these leading banks faced a low-rate environment. In search of yield, they expanded their activities abroad a few months before the 1929 crash. These findings renew our understanding of the expansion of France's banking sector in the 1920s. In addition, they shed new light on the role of public debt in financial stability in an open economy.

Adam Smith promoted free banking—private, competitive, convertible banknotes. He also supported restrictions on banks. We study Smith’s views and the era in which they developed, suggesting his ‘regulations’ were a backstop against banks’ risks to depositors but primarily monetary stability. In modern parlance, Smith supported macroprudential regulations to underpin monetary stability, as did Friedman and Schwartz the US FDIC. We discuss why Smith’s vision for banking went unrealised. Bank regulation became microprudential and ran aground in 2008/2009. The prominence of macroprudential regulation now provides a chance to reorientate regulation to support monetary stability. Early signs are not promising.

This paper examines global data on unbanked and underbanked consumers to highlight the role improved financial literacy and capability could play in motivating and enabling the safe and beneficial use of financial services. The paper uses Global Findex data, a demand-side survey on ownership and use of accounts at formal financial institutions, such as a bank or similar financial institution, or a mobile money service provider. The paper reviews the self-reported barriers to account ownership and use cited by unbanked adults and identifies the challenges faced by account owners who could not use an account without help. Together, these issues point to the importance of financial education to improve digital and financial literacy skills, in addition to product design that considers customer abilities, and strong consumer safeguards to ensure that customers benefit from financial access.

Few retirees use reverse mortgages. In this paper, we investigate how financial literacy and prior knowledge of the product influence take-up by conducting a stated-preference experiment. We exogenously manipulate characteristics of reverse mortgages to tease out how consumers value them and investigate differences by financial literacy and prior knowledge of reverse mortgages. We find that those with higher financial knowledge are more likely to know about reverse mortgages, not more likely to purchase them at any cost but are more sensitive to the interest rate and the insurance value of these products in terms of the non-negative equity guarantee.

Efficiencies of Agricultural Credit Associations of the US Farm Credit System are measured quarterly from 2005 through 2020. A slacks-based measure based on the directional distance function is used with non-performing loans included as an undesirable output. This permitted efficiency scores to be measured by type of defined input or output. Generally, most Associations were highly efficient, but there was deterioration in mean efficiency over the years 2008–2018, a period of financial difficulties in the US agriculture. Efficiencies of Associations that merged or consolidated were tracked before and after these activities. Mergers and consolidations often led to increased efficiencies.

Since the global financial crisis in 2008, there has been an elevated interest in private debt and as a macroeconomic variable. In light of the lack of high-frequency data, this study presents a unique monthly time series dataset on credit from and deposits in Swedish commercial banks from 1875 to 2020, covering 1,752 monthly observations and most of Swedish commercial banking history. In a first application, the study examines to what extent money in Sweden has been exogenous, created independently of demand by the central bank, or endogenous, created in response to demand by commercial banks, during different institutional settings. The results, derived via cointegration and impulse-response functions, show that though the relationship between deposits and credit has changed over time, both theories often hold validity simultaneously. While changes in deposits often have had significant impact on credit, the opposite has also been true. There are, however, differences between different regulatory regimes, as well as for different groups of banks.

We investigate the cause of the increase in mortgage investments by pension funds after the financial crisis. We show that, after the introduction of the new financial assessment framework in 2015, funds that experienced larger reductions in the funding ratio during the 2008–2012 crisis invested more in mortgages. We test the hypothesis that a past recovery mode has motivated pension funds to invest more in mortgages after the crisis. Funds that seek to further hedge their interest rate risks aim for a different risk/return investment profile. Mortgages could contribute to a less risky portfolio, as they have become even safer since the introduction of several new regulations in 2013. Recovery modes after the crisis combined with the new framework are a cause of the recent surge in mortgage holding by pension funds; we find that this led to a 39% increase in their mortgage investments, despite the fact that these are still low relative to the overall investments of pension funds.

The Swiss financial centre, as it developed during the twentieth century, has for a long time been presented and perceived as a singularly stable and solid environment escaping crises and restructuring. This view, promoted by the dominant actors – private banks, cantonal banks and large commercial banks – presenting their own development, in a teleological vision, as success stories, is strongly challenged by more recent research developments. Our article deals with the evolution of banking demography in Switzerland between 1850 and 2000 and examines the exits of banking institutions from the statistics, identifying six periods of crisis and restructuring. The article proposes a new statistical series that makes it possible to scrutinise with a high level of granularity the banks that fail or are taken over, in particular by observing their category of bank and, for the period 1934–99, their size. It uses historical banking demography as a gateway to understand more broadly the phases of transformation of the financial centre. In doing so, this contribution questions the gap between the existence of significant phases of banking instability, their low importance in collective memory, and the perception of the Swiss banking sector as a model of stability. It also helps to refine our understanding of the evolution of the Swiss financial centre in general.

Left-leaning and right-leaning governments hold opposing views on economic policy, resulting in disparities in economic behaviours and outcomes. Given this context, we explore the effect of political ideology on domestic credit using an unbalanced panel data of 29 countries from 1960 to 2014. Our empirical analysis shows that left-leaning governments reduce total domestic credit allocations. Also, we find that right-leaning governments provide more credit to the private sector, while left-leaning governments prefer to boost domestic credit to the public sector. In a further analysis, we show that political parties and their domestic credit strategies remain unchanged even during electoral periods. Our novel insights, that are robust to alternative measures, samples, and a set of econometric identifications, contribute to the literature on partisan politics and lending behaviour.