Doctoral defence: Financial fragility – Empirical studies on crises and reforms

April 15, 2021

On April 19th, DSc Eero Tölö will defend his doctoral dissertation ”Financial fragility: empirical studies on crises and reforms”.

The thesis contains an introductory chapter and four articles. The first two articles investigate data and models that can be used by policymakers to anticipate the risk of financial crises. The studies confirm the earlier finding by the literature that these crises are to a large extent predictable by various measures based on credit and prices. The studies also provide some new risk measures and models in this area.

The other two articles focus on the pricing of loans in the European interbank money market. One of the articles studies whether the bilaterally agreed loans contain private information about counterparty’s creditworthiness above and beyond the information in the public credit default swap quotes. The study finds that during times of financial stress especially the relationship lenders in the money market tend to acquire private information about the weaker borrowers’ credit quality such that the money market can have information advantage over the CDS market. The last remaining article studies how the pricing reflects implicit government guarantees that are often attributed to systemically important large banks. The study finds that large credit institutions received funding at a lower price than their peers during the sample period. While the study found evidence that this pricing differential is related to implicit government guarantees, it also found that the pricing differential has decreased while the new bail-in regulation has been introduced.

Eero Tölö works as a Senior Advisor at Norwegian Ministry of Finance, Oslo.