Jean-Marie Meier, Henri Servaes, 18 January 2021

Governments and central banks worldwide have reacted to COVID-19 with unparalleled emergency measures, including bailouts. One key objective of these emergency measures was to prevent fire sales and the externalities associated with them. Based on 31 years of data on fire sales of real assets, this column documents that there is an underappreciated ‘bright side to fire sales’ in the form of gains to buyers. Furthermore, the negative externalities of fire sales for customers or suppliers, for instance, appear limited. These findings indicate that the welfare losses associated with fire sales are smaller than previously thought, thereby raising doubts about the merits of bailouts to prevent them.

John Fell, Francesco Mazzaferro, Richard Portes, Eric Schaanning, 11 September 2020

On 23 July 2020, the European Systemic Risk Board published a technical note summarising the findings of a cross-sectoral, top-down analysis that sought to quantify the aggregate potential impact of large-scale corporate bond downgrades. This column summarises the main findings of the exercise, provides a rationale for such analyses, and suggests repeating such system-wide exercises regularly and on a global level to uncover vulnerable links and improve institutions’ own risk management. 

Jiangze Bian, Zhiguo He, Kelly Shue, Hao Zhou, 09 December 2018

Excessive leverage and subsequent deleveraging-induced fire sales have been major contributors in past financial crises. This column explores the behaviour of two types of margin investors– brokerage-financed and shadow-financed – during a tumultuous period for the Chinese stock market. Results show that for accounts with exposure to fire sale risk, shadow-financed accounts account for a much higher proportion of the total stock market capitalisation than brokerage-financed accounts.


The objective of this course is to present empirical applications (as well as the research methodologies) of relevant questions for both banking theory and policy, mainly related to Systemic Risk, Crises, Monetary Policy and Risk taking behaviour. An important objective is to understand scientific papers in empirical banking; to accomplish this objective, emphasis is placed on illustrating research methodologies used in empirical banking and learning the application of these methodologies to selected topics, such as:

- Securities and credit registers; large datasets

- Fire sales, runs, market and funding liquidity, systemic risk

- Risk-taking and credit channels of monetary policy

- Moral hazard vs. behavioral based risk-taking

- Secular stagnation, banking and debt crises

- Interbank globalization, contagion, emerging markets, policy

Giovanni Favara, Mariassunta Giannetti, 24 April 2015

During financial crises, fire sales (or forced asset sales) could further aggravate the financial fragility. However, evidence on why agents do not take actions to avoid collateral liquidation is scant. This column uses data on foreclosures and house prices from the US housing crisis to present new evidence on the issue. The authors argue that lenders with a large share of outstanding mortgages internalise the negative spillovers of liquidation. Thus, they might be more likely to renegotiate and avoid price-default spirals. 

Xavier Vives, 22 December 2014

Banking has recently proven much more fragile than expected. This column argues that the Basel III regulatory response overlooks the interactions between different kinds of prudential policies, and the link between prudential policy and competition policy. Capital and liquidity requirements are partially substitutable, so an increase in one requirement should generally be accompanied by a decrease in the other. Increased competitive pressure calls for tighter solvency requirements, whereas increased disclosure requirements or the introduction of public signals may require tighter liquidity requirements.


CEPR Policy Research