|
on Financial Development and Growth |
| By: | Samuel Fiifi Eshun; Evžen Kočenda |
| Abstract: | How robust is the empirical evidence on the determinants of financial inclusion, and why do reported effects differ across studies? We provide the first systematic meta-analysis of this literature, synthesizing 5, 172 estimates from 100 studies published between 2013 and 2024. We standardize reported estimates using partial correlation coefficients corrected with the UWLS+3 procedure and examine publication selection using precision-weighted FAT-PET regressions. We employ Bayesian model averaging to identify sources of heterogeneity. Publication selection is substantial but differs markedly across determinant categories. In our main specification, significant effects beyond publication bias remain for macroeconomic conditions, banking and financial depth, technology and infrastructure, and the persistence of financial inclusion, whereas evidence for demographic, income, education and human capital, and institutional determinants is weaker. Except for persistence, the corrected associations are generally modest. Technology and infrastructure provide the most consistent evidence among actionable determinants, while the effect attributed to banking and financial depth is substantially smaller than the unadjusted literature suggests. We find no systematic evidence of p-hacking. Differences in measurement, estimation methods, sample characteristics, and economic context explain much of the remaining heterogeneity. Overall, the literature contains economically relevant regularities, but conventional estimates often overstate their magnitude and generality. |
| Keywords: | financial inclusion, banks, meta-analysis, model uncertainty, publication bias, Bayesian model averaging |
| JEL: | C83 G21 O16 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13039 |
| By: | Maxime Merli (LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg); Antoine Parent (IXXI - Institut Rhône-Alpin des systèmes complexes - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - INSA Lyon - Institut National des Sciences Appliquées de Lyon - Université de Lyon - INSA - Institut National des Sciences Appliquées - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes) |
| Abstract: | In this paper, we unearth a forgotten study of Pierre Des Essars, the director of research at the Banque de France in the late 19th century, enriched with comments from contemporary financial analysts. Des Essars provides the first and only existing example of the actual composition of French individual portfolios during the Belle Époque. By revisiting what is generally taught, our analyses show that many of the intuitions of "finance for normal people" were already present in the financial analysts' writings during the Belle Époque. Specifically, we show in an unprecedented way that these writings prefigure behavioral portfolio theory word for word a century before its emergence. In addition, our findings highlight that this popular science of investment was born from observations of individual portfolios and the objective of providing financial education for the masses. Finally, we reveal strong invariants in the construction of behavioral finance versus standard finance a century apart. |
| Keywords: | N23, N20, G15, G14, behavioral portfolio theory | cognitive psychology | finance for normal people | rationality of individual investors JEL Classification: G11, behavioral portfolio theory | cognitive psychology | finance for normal people | rationality of individual investors JEL Classification: G11 G14 G15 N20 N23 |
| Date: | 2025–01–27 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05775271 |
| By: | Shyamal Chowdhury; Prabal Roy Chowdhury; Joeri Smits |
| Abstract: | After decades of microfinance expansion and despite charging higher interest rates, moneylenders continue to exist alongside microfinance institutions (MFIs). We develop a dynamic model with ex post moral hazard, in which borrowers use MFI loans for production and can rely on moneylenders for bridge loans after shocks to repay MFIs and preserve future access to MFI credit. We then study how MFI competition shapes the coexistence between MFIs and moneylenders. The effect of competition on MFI credit is ambiguous: it may weaken repayment incentives or replace moneylenders as bridge lenders. By contrast, competition unambiguously reduces moneylender credit. In a village-level randomized expansion in Bangladesh, stratified by baseline MFI presence, one additional MFI reduces the number of moneylender loans by roughly 30-40% two to three years later, with no detectable effect on MFI or overall borrowing. This suggests that, in markets where MFIs rely primarily on the threat of exclusion to induce repayment and moneylenders provide emergency finance, gains from additional MFI entry may be greater in less saturated areas. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.12186 |
| By: | Davide Arnaudo (Bank of Italy); Vincenzo Cuciniello (Bank of Italy); Giorgio Gobbi (Bank of Italy); Federico Guerra (Bank of Italy); Federico Labianca (Bank of Italy); Valentina Nigro (Bank of Italy); Sara Pinoli (Bank of Italy); Massimiliano Rigon (Bank of Italy); Paola Rossi (Bank of Italy); Federico Maria Signoretti (Bank of Italy); Pietro Tramontano (Bank of Italy) |
| Abstract: | This paper analyses the Italian private equity and venture capital market. Although total investment more than doubled between 2015 and 2025, the Italian market remains less developed than those of the other main European economies. Private equity investment is strongly oriented towards technology- and knowledge-intensive sectors, with significant participation by foreign funds. The public sector plays a prominent role in fundraising by Italian operators, whereas the contribution of private institutional investors remains relatively limited. Compared with firms in the same sector, size class and geographical area, private equity target firms are larger, more profitable and better capitalized; after turning to private equity, they record faster growth in total assets, employment, and investment, particularly in intangible assets. The further development of private capital markets in Italy could be fostered by a greater involvement of private investors and a wider availability of patient capital to support firms' growth and innovation. |
| Keywords: | private equity, venture capital, firm growth |
| JEL: | G23 G24 L25 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1061_26 |
| By: | Rajashri Chakrabarti; Philippe d'Astous; Kory Kroft; Sheisha Kulkarni; Vyacheslav Mikhed; Matthew J. Notowidigdo; Sahil Raina; Barry Scholnick |
| Abstract: | We estimate the causal effects of a financial windfall on consumption, savings, and wage earnings using linked administrative data on a large sample of Canadian lottery winners. Using separate linkages of lottery winners to income tax records and credit bureau data, we estimate how lottery winnings affect consumption measured through credit card spending, savings through financial asset accumulation and debt repayment, and wage earnings from tax records. We then examine how these responses vary across the income distribution. We find that high-income individuals allocated a larger share of lottery winnings to savings and leisure, while low-income individuals spent a larger share on consumption. We illustrate the policy relevance of these heterogeneous responses through three applications: designing fiscal stimulus programs, evaluating a Universal Basic Income (UBI), and determining optimal top tax rates on wage earnings and savings. |
| JEL: | D15 H2 J22 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35836 |
| By: | Alicia Aguilar (BANCO DE ESPAÑA) |
| Abstract: | This paper provides a novel and high-frequency index of sovereign fragmentation in the euro area. The proposed methodology offers a decomposition of sovereign yields into the common trend, market conditions, and fundamentals-based divergence, which are uncorrelated to fragmentation. Therefore, the fragmentation index constitutes a bottom-line indicator for euro area central banks, as it measures disorderly market dynamics in sovereign markets not warranted by fundamentals. In that sense, this paper provides relevant conclusions about the effectiveness of monetary policy interventions, pointing to the significant effect of market stabilisation announcements, such as the Transmission Protection Instrument (TPI), in reducing sovereign fragmentation. I contribute to the literature by estimating the uncorrelated drivers of euro area yields divergence using a restricted principal components analysis. The estimated factors are then used to assess the effect of fragmentation, market conditions and fundamentals on country yields through several economic regimes, pointing to differences across countries and over time. |
| Keywords: | principal components, monetary policy, quantitative easing, sovereign debt, financial crises, sovereign bond rates |
| JEL: | C38 E52 E58 H63 G01 G12 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2520 |
| By: | Pierlauro Lopez (Federal Reserve Bank of Cleveland); Francisco Vázquez-Grande (Federal Reserve Board); David López-Salido (Banco de España) |
| Abstract: | A simple production economy with nominal price rigidities explains several key asset pricing facts, including the average slopes and cyclicality of equity and interest rate term structures. Nominal rigidities amplify the procyclicality of dividends after negative productivity shocks and generate countercyclical inflation, as sluggish price adjustment leads to a gradual dividend recovery. Consequently, short-duration equities (bonds) have more (less) procyclical payoffs than their long-duration counterparts. Slow-moving consumption habits produce large, countercyclical risk prices, yielding realistic asset valuations. Extending Campbell-Cochrane preferences with both market and home consumption habits allows them to operate in production economies while preserving realistic macroeconomic dynamics. |
| Keywords: | equity and bond yields, Campbell-Cochrane habits, nominal rigidities, macrofinance separation, new Keynesian model |
| JEL: | E43 E44 G12 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2635e |
| By: | Banu, Elena; Vinci, Francesca; Best, Lea |
| Abstract: | This paper develops novel firm-level measures of shareholder geographical concentration and examines how elevated home bias in equity holdings affects investment resilience in the euro area. We combine security-level holdings data from the ECB’s Securities Holdings Statistics (SHS-S) with firm-level financial-statement data from Compustat, and document that equity ownership remains strongly concentrated domestically, with limited cross-border diversification within the monetary union. Using a difference-in-differences design around the COVID-19 shock, combined with a propensity score matching approach, we then analyse whether equity home bias shapes firms’ responses to macroeconomic disruptions. Against an average 16% decline in exports among the firms in the sectors most affected by the pandemic, those with more concentrated, home-biased shareholder bases reduced investment by 20% more than their more diversified peers after the shock. The effect operates mainly through weaker equity resilience, with equity declining by 13%, while sales and bank financing remain comparable. Our findings highlight the benefits of deeper cross-border equity integration for corporate resilience. JEL Classification: F36, G32, G15, D22, E44 |
| Keywords: | COVID-19 shock, cross-border equity integration, difference-in-differences, firm resilience, macroeconomic shocks, shareholder geographical concentration |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263296 |
| By: | Haonan Li (Graduate School of Economics, Waseda University); Yasuyuki Todo (Graduate School of Economics, Waseda University, and Research Institute of Economy, Trade and Industry) |
| Abstract: | Existing measures of geopolitical risk are country-level and assume that all investors face the same risk in a given destination. This paper constructs a directional, bilateral geopolitical risk index that captures how the domestic media of each source country report on geopolitical conflicts involving each destination country. Using GDELT news data, the index covers more than 200 source and destination countries at a monthly frequency. We combine the index with project-level data on greenfield FDI and product-level trade data, and exploit variation across source countries for the same destination and period while controlling for destination-specific shocks. Source countries whose media place greater emphasis on a destination's geopolitical risk subsequently announce more greenfield projects there: a one-standard-deviation increase in the index is associated with a 7% increase in new projects. This suggests that firms may read such coverage as a signal of future market-access frictions and localize production in advance. Consistent with this interpretation, the association is concentrated in projects serving the host market and in sectors that depend on local demand, and is absent among politically aligned country pairs. By contrast, higher risk coverage is followed by a short-lived decline in imports, driven by severe conflicts, while exports do not respond. |
| Keywords: | geopolitical risk, media, foreign direct investment, trade, GDELT |
| JEL: | F14 F21 F23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:wap:wpaper:2615 |
| By: | Couaillier, Cyril; Faber, Finn; Rodriguez d’Acri, Costanza; Shaw, Frances; Passinhas, Joana |
| Abstract: | We introduce two indicators to track the build-up of vulnerabilities in the euro area banking sector on a quarterly basis by leveraging the information collected in EU-wide solvency stress tests. First, we introduce an indicator of conditional capital depletion, the Stress Vulnerability Index (SVI), which quantifies potential losses under adverse scenarios when tail credit risk is highest. Second, we introduce an indicator of earnings vulnerability, the Profitability Vulnerability Index (PVI), which assesses the capacity of the banking sector to generate capital organically. While the two indices spike synchronously during systemic crises, they can also decouple. We show that this occurs when tail risks to capital subside but earnings remain compressed, or conversely, when recessionary fears mount while current profitability strengthens. These divergences provide actionable signals for macroprudential policy by distinguishing between the accumulation of solvency risks and the impairment of loss absorption capacity. In doing so, the indices support decisions on the activation, build-up, stability or release of prudential buffers. We validate the usefulness of the indicators by showing that both indicators were strongly associated with the probability that euro area banks received state aid in the aftermath of the Great Financial Crisis. JEL Classification: E61, G01, G21, G28 |
| Keywords: | bank capital, financial stability, stress test |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263295 |
| By: | Husnu C. Dalgic; Brittany Almquist Lewis; Andrea Modena |
| Abstract: | We show that strengthening creditor rights can exacerbate financial instability, par ticularly under long debt maturities and low collateral volatility. We build a model of financial intermediaries that raise financing by pledging collateral in the sale and repurchase (repo) market. In the short term, increasing collateral pledgeability makes repo creditors safer and reduces debt rollover risk; however, it also expands long-term debt capacity and leverage, ultimately heightening run risk. This instability is a dis tinct feature of environments with long-term liabilities and low-volatility assets, where market discipline fails to constrain post-policy leverage. We test our model’s predic tions by exploiting the 2005 BAPCPA bankruptcy reform, which expanded creditor protections via repo safe harbors. Using hand-collected data on dealer repo collateral, we confirm that while the law enhanced collateral pledgeability, it fueled short-term leverage and precipitated sharper de-leveraging during the downturn |
| Keywords: | repo, collateral, safe harbor, bankruptcy, leverage, dealer banks, bank runs. |
| JEL: | G01 G21 G23 G28 G33 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_783 |
| By: | G. Charles-Cadogan |
| Abstract: | This paper develops a revolving-door model in which a regulator designs policy signals that affect a regulated firm's capital structure while holding an implicit career option to leave public service for the regulated firm or its advisers. The model has three linked mechanisms. First, regulatory signals alter the firm's pricing, leverage, and risk choices by changing the tradeoff between consumer surplus and firm profit. Second, because the regulator's outside payoff is convex in regulated-firm value, the career option rises with firm value, leverage, and signal-induced volatility. Third, when signal-induced volatility raises the option vega of firm equity, the same mechanism can increase tail risk and reduce distance to default. A proof-of-concept calibration illustrates leverage-vega warning regions and shows how a regulator-induced signal can move a firm from a go-leverage region into an early-warning or crash-risk region. The calibration includes maturity comparisons, sensitivity grids over compensation convexity and initial leverage, a bank-like parameter anchor, stochastic signal simulations, and a stopping-horizon diagnostic. Evidence from federal payroll data on post-employment restrictions supports the career-option primitive by showing that limits on revolving-door opportunities affect post-agency pay. The exercises also organize historical regulatory failures: Lehman Brothers as a regulatory-vacuum case, Silicon Valley Bank as a distorted-signal and weak-supervision case, and Signature Bank as a converted-signal case involving post-public-service incentives, lighter oversight, rapid growth, uninsured-deposit exposure, and tail risk. The model does not predict collapse dates; it identifies conditions under which regulatory forbearance, weak debt penalties, and career-option incentives can delay oversight until firms cross a leverage-vega warning threshold. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.08804 |
| By: | Olivier J. Blanchard; Pedro Martínez-Bruera; Gonzalo Huertas |
| Abstract: | We characterize the size of the range of multiple equilibria in sovereign debt markets. We show that the nature of the equilibrium depends crucially on the degree of uncertainty, which we formalize first as uncertainty about primary balances and later as uncertainty about the fiscal feedback rule. For low uncertainty, the range can be large, but it becomes smaller as uncertainty becomes larger. If uncertainty is large enough, the multiplicity disappears: the interest rate is unique and becomes a continuous function of the debt level. The source of these results is that larger uncertainty decreases the effect of the perceived probability of default on the actual probability of default, thus reducing and eventually eliminating the scope for multiplicity. Interpreting the source of an increase in the interest rate in actual situations is difficult, and complicates the use of intervention by central banks. |
| JEL: | H6 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35850 |
| By: | Bontu Ankit Patro |
| Abstract: | U.S. Treasury securities are widely held by global investors, including foreign central banks, corporations and retirement accounts. What accounts for their popularity? |
| Keywords: | Treasury securities |
| Date: | 2026–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:103897 |
| By: | International Monetary Fund |
| Abstract: | Many emerging markets and developing economies face elevated debt vulnerabilities and financing needs. Following the 2020-21 surge in debt levels associated with the COVID-19 shock, and the subsequent tightening in global financial conditions, many emerging markets and developing economies (EMDEs)1 are grappling with rising debt service burdens that squeeze the space available for development spending. Pandemic-induced deficits have declined, and debt levels have stabilized and are projected to remain stable or slightly decline under staff’s baseline assumptions. However, many EMDEs are confronting high costs of financing, large external refinancing needs, and a decline in net external flows amid important investment and social spending needs. To help address these challenges, countries would benefit from actions, both at domestic and international level, to proactively expand their capacity to finance development spending. There are also important risks to the baseline that will require careful monitoring. This paper aims to help inform the international debate on these issues by providing factual data and insight on the debt vulnerabilities and financing pressures facing EMDEs. |
| Keywords: | IMF SRDSF risk rating; IMF-World Bank LIC-DSF; debt vulnerability; financing capacity; IMF-World Bank LIC-DSF database; debt challenge; PPG debt flow; debt burden indicator; Debt burden; Debt service; Debt sustainability; Global; Middle East and Central Asia; Sub-Saharan Africa; Asia and Pacific |
| Date: | 2025–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfpps:2025/002 |
| By: | David Beers; Obiageri Ndukwe; Joe Berry |
| Abstract: | The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default. |
| Keywords: | Financial markets and funds management; Funds management; International markets and currencies; Financial system; Financial stability and systemic risk |
| JEL: | F F3 F34 G G1 G10 G14 G15 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-48 |
| By: | Bahaj, Saleem; Reis, Ricardo |
| Abstract: | By controlling the scarcity of an offshore parallel currency, policymakers can manage capital flows and steer the exchange rate. This is an alternative policy to setting the rate of a Tobin tax. However, its fiscal implications are distinct, and this paper lays them out. Having a parallel currency creates both seigniorage and liquidity revenues. The two revenues have different sizes and different Laffer curves, both of which vary with the regime for the exchange rate, with liquidity policies, and with the size of the offshore market. Quantitatively, the fiscal footprint of offshore money management is small and the Laffer curve is flat, boosting the chances that it can be used independently of fiscal pressures. |
| Keywords: | integrated policy framework;CNH;financial transaction taxes;fiscal-monetary interactions |
| JEL: | F31 F33 E51 |
| Date: | 2026–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:141134 |
| By: | Rafael Guerra; Gabriel Zelpo |
| Abstract: | This paper analyses the state-dependent effects of geopolitical risks on gold prices (i.e. the safe-haven role of gold), conditional on financial conditions. Geopolitical risks are often associated with tighter financial conditions. However, recent data reveal a decoupling be tween such shocks and more restrictive financial conditions, raising the question of how gold returns are affected by geopolitical shocks, conditional on the macro-financial environment. Using monthly data from 1990 to 2026, we find that increases in geopolitical risks– both geopolitical threats and realised events– increase gold returns, with stronger effects ob served during periods of loose financial conditions. We decompose this relationship into two mechanisms: (i) the credit and liquidity risk channel and (ii) the opportunity cost channel. Our findings indicate that the relationship operates most clearly through the first channel, suggesting that the key factor is investors’ capacity to rebalance, while the evidence for the second channel is less conclusive. Finally, we also find that the largest impact occurs when periods of loose financial conditions are compounded with periods of geopolitical escala tions, as seen in 2024–26. These insights highlight the relevance of understanding gold as a safe-haven asset amid complex macro-financial conditions. |
| Keywords: | gold prices, geopolitical risk, financial conditions |
| JEL: | G15 E44 F51 G12 Q02 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1380 |
| By: | Thomas Drechsel; Daniel Lewis; Davide Melcangi; Laura Pilossoph |
| Abstract: | To study monetary policy transmission at the firm level, researchers typically consider heterogeneity along a small number of firm characteristics, such as size or leverage. We instead estimate the full distribution of firms’ investment responses to monetary policy, using a clustering regression framework. Our novel approach captures multidimensional and unobservable heterogeneity across firms and time. We find that investment by most firms in most time periods responds little to monetary policy. Only about 5% of firm-time observations are associated with a strong response. We then investigate the sources of heterogeneity ex post. We find that most of the variation in investment sensitivity arises within firms over time. Although several firm characteristics predict responsiveness to monetary policy, the majority of heterogeneity remains unexplained by firm observables. We demonstrate that our empirical estimates provide new targets for disciplining structural models of firm heterogeneity. |
| JEL: | D25 E22 E32 E52 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35867 |
| By: | Dennis Bonam; Dorinth van Dijk; Gavin Goy; Bing Zhu |
| Abstract: | We provide new evidence on the international spillover effects of US monetary policy through global commercial real estate (CRE) markets. Using a global VAR-X model that exploits both city- and country-level data, we account for spatial dependencies arising from cross-border investor ownership of CRE. A US quantitative easing shock leads to a persistent rise in CRE prices, both within and outside the US, and an expansion of credit, but mostly in the US. To interpret these findings, we develop an open economy New Keynesian model with CRE markets, which highlights the role of increased domestic demand for foreign CRE as a key transmission channel. Moreover, the model reveals that spillover effects can spill back to the US via trade linkages, amplifying the initial effects of US monetary policy. |
| Keywords: | monetary policy; commercial real estate; international spillovers; quantitative easing; global VAR-X model; New Keynesian model; |
| JEL: | C32 E32 E52 F42 R33 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:872 |
| By: | Santiago Camara; Lawrence J. Christiano; Husnu Dalgic |
| Abstract: | We investigate the global transmission of US monetary policy shocks. The existing literature finds that a US monetary contraction causes a contraction in economic activity not only in the US but also abroad. This sharply contradicts the traditional Mundell-Fleming view. Much of the existing literature refers to frictions in international financial markets as reasons for the failure of the traditional view. Instead, we argue that trade is key for understanding the transmission of US monetary policy shocks. |
| Keywords: | Monetary policy spillovers, Trade channel, Small open economy DSGE models, Exchange rates. |
| JEL: | E44 E52 F31 F32 F41 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_782 |
| By: | Stijn Van Nieuwerburgh |
| Abstract: | Artificial intelligence is driving a large expansion in data center capacity, power infrastructure, and specialized computing equipment. We estimate that a 1 GW AI campus costs about $41 billion. A 188 GW U.S. buildout completed by 2032 would require total investment of nearly$9 trillion and amount to annual investment of 3.2 percent of GDP over 2025–2032. As hyperscaler capital expenditures outgrow internal cash flow, financing is shifting toward leases, joint ventures, project debt, private credit, securitization, and special-purpose vehicles. These structures expand funding capacity but also raise asset-level leverage, obscure contingent obligations, and expose investors to tenant concentration, technological obsolescence, execution delays, and uncertain residual values. |
| JEL: | E01 E22 G1 G31 R33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35865 |
| By: | Sriram Nagaraj; Seung Jung Lee |
| Abstract: | Financial stability rests on the premise that distress is largely idiosyncratic and therefore diversifiable: when one institution errs, the rest of the system absorbs the shock. That premise fails when many decision-makers depend on the same infrastructure. Agentic AI systems, which take consequential actions rather than only emitting predictions, are becoming such a substrate, and the binding concern shifts from the model risk of a single deployment to the systemic risk of the population. We develop this account in six mathematical settings. Chapter 1 recasts the PD/LGD/EAD decomposition of expected loss as an expected-harm identity and introduces a set-valued containment-risk measure; under a lever-assignment axiom that review cannot intercept an irreversible action, no non-preventive control satisfies a coherent tail constraint. Chapter 2 lifts this to a fleet sharing a foundation model: the shared model is a non-diversifiable common exposure whose expected-shortfall floor holds however large the fleet grows, and a percolation threshold governs contagion. Chapter 3 recasts these dynamics as a marked, Hawkes-excited jump diffusion, identifying the robust stress problem with a time-consistent entropic risk measure. Chapter 4 treats runtime guardrails as partially observed stochastic control, giving an observability trichotomy, a detection floor, and, under commit exogeneity, a runtime-impossibility corollary. Chapter 5 makes the adversary a player, yielding an underinvestment wedge proportional to systemic reach. Chapter 6 makes capability a state variable in an arms race. One claim runs through all six: the systematic component of agentic risk cannot be diversified, detected away, or reversed, and only ex-ante structural prevention moves it. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.08806 |
| By: | Romain Meuwissen; Martin Rohár |
| Keywords: | Stablecoins, flow of funds, financial intermediation, financial stability, financial regulation, monetary architecture, dollarisation, international role of the euro, bank funding, digital money |
| JEL: | E42 E44 G28 O33 |
| Date: | 2026–10–05 |
| URL: | https://d.repec.org/n?u=RePEc:stm:wpaper:79 |