The Term Spread as a Predictor of Financial Instability
The term spread is the difference between interest rates on short- and long-dated government securities. It is often referred to as a predictor of the business cycle. In particular, inversions of the yield curve—a negative term spread—are considered an early warning sign. Such inversions typically receive a lot of attention in policy debates when they […]
Do “Too-Big-to-Fail” Banks Take On More Risk?
In the previous post, João Santos showed that the largest banks benefit from a bigger discount in the bond market relative to the largest nonbank financial and nonfinancial issuers.
Designing Executive Compensation to Curb Bank Risk Taking
The financial crisis and its aftermath have spurred calls for bank compensation packages that mitigate risk-taking incentives.