ML-Quant: Risk, Credit & Bankinghttps://www.ml-quant.com/topics/risk-credit-banking/Credit risk, default prediction, banking, systemic risk and risk measures. en Agentic AI Systems and Financial Stability, From Model Risk to Systemic Riskhttps://www.ml-quant.com/papers/arxiv/2610.08806/https://www.ml-quant.com/papers/arxiv/2610.08806/Fri, 09 Oct 2026 07:00:00 +0000The study shows that agentic AI systems sharing a foundation model create non-diversifiable common exposure whose systemic risk floor does not shrink as the fleet grows, shifting concern from individual model risk to population-level contagion. Ranking Prior Alignment for Credit Risk Modeling: When Do External Priors Matter?https://www.ml-quant.com/papers/arxiv/2610.11146/https://www.ml-quant.com/papers/arxiv/2610.11146/Fri, 09 Oct 2026 07:00:00 +0000A model-agnostic framework distills ranking priors from experts or teacher models into credit scorers via KL divergence, improving cold-start performance with scarce labeled data. Regime-Aware Estimation of Large Equity Correlation Matrices: Tail-Pairwise Dependence and Dynamic Conditional Correlation Decomposition for Water and Energy Sectorshttps://www.ml-quant.com/papers/arxiv/2610.12166/https://www.ml-quant.com/papers/arxiv/2610.12166/Fri, 09 Oct 2026 07:00:00 +0000Fitting separate dependence matrices to lower-tail, central, and upper-tail regimes reveals tail-driven co-movements that single Gaussian-copula structures systematically miss. Heterogeneous Estimation of the Causal Effect of Debt Restructuring Interventions: A Causal and Explainable Uplift Modeling Framework for the Economic Optimization of Credit Risk Portfolioshttps://www.ml-quant.com/papers/ssrn/7556744/https://www.ml-quant.com/papers/ssrn/7556744/Fri, 09 Oct 2026 07:00:00 +0000A causal framework compares six estimators of treatment effect to optimally assign debt restructuring interventions, revealing that targeting borrowers by predicted effect generates substantially positive value where blanket treatment fails. Common Banks, Supply Chains, and the Transmission of Real Shockshttps://www.ml-quant.com/papers/ssrn/7588198/https://www.ml-quant.com/papers/ssrn/7588198/Fri, 09 Oct 2026 07:00:00 +0000Using Portuguese wildfire data, the research finds firms whose banks also lend to suppliers experience 10 percentage points smaller credit declines and face attenuated real losses. Beyond Financial Conditions: Measuring Structural Vulnerabilities in the U.S. Financial Systemhttps://www.ml-quant.com/papers/repec/fip-fedgfe-103791/https://www.ml-quant.com/papers/repec/fip-fedgfe-103791/Fri, 09 Oct 2026 07:00:00 +0000An index capturing structural financial weaknesses displays gradual buildup before crises, predicts shock amplification, and reveals delayed monetary policy transmission effects. The Equilibrium Impact of Credit Frictions: Evidence from Default Risk Using Firm-Level Datahttps://www.ml-quant.com/papers/repec/nbr-nberwo-35552/https://www.ml-quant.com/papers/repec/nbr-nberwo-35552/Fri, 09 Oct 2026 07:00:00 +0000UK firm-level data shows relaxing credit frictions raises output by 25% and wages by 23%, with most gains from capital accumulation rather than reallocation. What is the Impact of a Major Unconventional Monetary Policy Intervention?https://www.ml-quant.com/papers/repec/bdm-wpaper-2026-01/https://www.ml-quant.com/papers/repec/bdm-wpaper-2026-01/Fri, 09 Oct 2026 07:00:00 +0000The ECB's "whatever it takes" announcement reversed euro area banks' risk appetite, reducing loan growth and credit risk, showing capitalization can curb lending during crises. Bankers’ Outside Options and Financial Riskhttps://www.ml-quant.com/papers/repec/ajk-ajkdps-429/https://www.ml-quant.com/papers/repec/ajk-ajkdps-429/Fri, 09 Oct 2026 07:00:00 +0000Improved job opportunities for bankers increase non-investment-grade lending and borrower risk without compensating spreads, raising systemic risk through weakened workplace discipline. Banks versus Private Credit: How Capital Requirements Shape Tailored Lendinghttps://www.ml-quant.com/papers/ssrn/7524779/https://www.ml-quant.com/papers/ssrn/7524779/Fri, 02 Oct 2026 07:00:00 +0000The study models how capital requirements tax banks on tailored loans, pushing riskier firms toward private credit; evidence shows that tighter leverage rules reduce bank tailoring by 25 percent in quantitative terms. The Geometry of Risk: An Integrated Monitoring Framework for Multi-Asset Systemic Stresshttps://www.ml-quant.com/papers/ssrn/7521018/https://www.ml-quant.com/papers/ssrn/7521018/Fri, 02 Oct 2026 07:00:00 +0000The research develops a four-layer diagnostic framework combining network topology, dynamic causality, tail risk, and regime classification to monitor multi-asset systemic stress in real time. Impact of Central Bank Digital Currencies on Financial Stabilityhttps://www.ml-quant.com/papers/ssrn/7540719/https://www.ml-quant.com/papers/ssrn/7540719/Fri, 02 Oct 2026 07:00:00 +0000Calibrated simulations show existing central bank digital currencies remain below thresholds needed to measurably affect bank credit or financial stability. The Fed Put and Bank Risk-Taking: Evidence from the Loan Bookhttps://www.ml-quant.com/papers/repec/ces-ceswps-12980/https://www.ml-quant.com/papers/repec/ces-ceswps-12980/Fri, 02 Oct 2026 07:00:00 +0000The paper shows that monetary policy reduces perceived tail risk for bank equity, encouraging banks to originate riskier loans to commercial and industrial borrowers. Bank Dollarization, Lending Behavior and Real Effectshttps://www.ml-quant.com/papers/repec/tcb-wpaper-2617/https://www.ml-quant.com/papers/repec/tcb-wpaper-2617/Fri, 02 Oct 2026 07:00:00 +0000The study shows that banks with high foreign exchange risk reduce lending to both exposed and unexposed firms after exchange rate shocks, with measurable real effects on small and medium enterprises. Financial frictions and firms’ capital composition: a structural estimation of firms’ borrowing constraints for the UKhttps://www.ml-quant.com/papers/repec/boe-boeewp-023254/https://www.ml-quant.com/papers/repec/boe-boeewp-023254/Fri, 02 Oct 2026 07:00:00 +0000UK firm-level analysis shows that interest rate spreads are less sensitive to capital-to-debt ratios for firms with higher intangible intensity, suggesting intangibles are less effective collateral than tangible assets. Solvency and systemic risk of European life insurershttps://www.ml-quant.com/papers/repec/boe-boeewp-023290/https://www.ml-quant.com/papers/repec/boe-boeewp-023290/Fri, 02 Oct 2026 07:00:00 +0000The research distinguishes solvency risk from systemic risk in European life insurers, finding growing systemic risk exposure since 2007 and evidence of interconnectedness with banks that intensifies during financial stress. Financial Crisis Cycleshttps://www.ml-quant.com/papers/repec/cnn-wpaper-26-015e/https://www.ml-quant.com/papers/repec/cnn-wpaper-26-015e/Fri, 02 Oct 2026 07:00:00 +0000A theoretical model shows that debt accumulation during booms delays post-crash recovery through debt overhang and coordination failures, with debt restructuring conditional on recapitalization being more efficient than unconditional subsidies. The Cov-lite Liquidity Advantage, Regulatory Pressures, and the Evolution of the Leveraged Loan Markethttps://www.ml-quant.com/papers/repec/nbr-nberwo-35617/https://www.ml-quant.com/papers/repec/nbr-nberwo-35617/Fri, 02 Oct 2026 07:00:00 +0000Post-GFC, banks facing stricter regulation increased cov-lite loan issuances due to liquidity advantages that lower credit spreads, particularly for private firms seeking easier asset sales. Financial Tail Risk Beyond Lipschitz Continuity via Semi-Discrete Optimal Transporthttps://www.ml-quant.com/papers/arxiv/2609.27785/https://www.ml-quant.com/papers/arxiv/2609.27785/Fri, 25 Sep 2026 07:00:00 +0000Proposes semi-discrete optimal transport to capture heavy tails in financial returns, maintaining stable tail ratio estimates across diverse neural generators when standard Lipschitz methods fail. DefaultGNN: A Dual-Perspective GNN Framework for Predicting Corporate Default from Buyer-Seller Transaction Networkshttps://www.ml-quant.com/papers/arxiv/2609.25542/https://www.ml-quant.com/papers/arxiv/2609.25542/Fri, 25 Sep 2026 07:00:00 +0000A dual-perspective graph neural network framework predicts corporate defaults from buyer-seller transaction networks, improving approval rates by 7-11 percentage points without increasing default risk. Risk Measures under Paired-Ambiguity: A Deep Learning Reflected BSDE Frameworkhttps://www.ml-quant.com/papers/arxiv/2609.23768/https://www.ml-quant.com/papers/arxiv/2609.23768/Fri, 25 Sep 2026 07:00:00 +0000Develops a deep learning scheme for optimal stopping under simultaneous model and discount-rate ambiguity, with application to American option valuation under uncertainty. Forward Guidance and the Dynamics of Bank Credit: The Bank Balance-Sheet Channel of Monetary Newshttps://www.ml-quant.com/papers/ssrn/7514178/https://www.ml-quant.com/papers/ssrn/7514178/Fri, 25 Sep 2026 07:00:00 +0000High-frequency analysis reveals contractionary forward guidance immediately cuts bank lending, while expansionary guidance produces weak stimulus, driven by binding capital constraints. Monetary policy transmission by securitising bankshttps://www.ml-quant.com/papers/ssrn/7515879/https://www.ml-quant.com/papers/ssrn/7515879/Fri, 25 Sep 2026 07:00:00 +0000Banks engaged in securitization contract lending more sharply after monetary tightening because their investor base demands higher returns and cuts risk exposure when rates rise. Hedge Fund Performance and Interest Rate Conditions: Evidence from Regulatory Datahttps://www.ml-quant.com/papers/ssrn/7493702/https://www.ml-quant.com/papers/ssrn/7493702/Fri, 25 Sep 2026 07:00:00 +0000Using SEC filings from 2013-2021, the paper finds hedge fund returns show heterogeneous sensitivity to interest rates, with effects varying by strategy, leverage, and derivative exposure. State-dependent global banking systemic risk: An integrated framework of network connectedness, tail risk, and global financial conditionshttps://www.ml-quant.com/papers/ssrn/7493706/https://www.ml-quant.com/papers/ssrn/7493706/Fri, 25 Sep 2026 07:00:00 +0000Combining quantile-connectedness, tail-risk measures, and network analysis, the research shows tail connectedness exceeds median levels and lower-tail effects persist longer, with the VIX alone reliably predicting next-week systemic risk. The Low Return Channel of Negative Interest Rates in Bank Lendinghttps://www.ml-quant.com/papers/ssrn/7489554/https://www.ml-quant.com/papers/ssrn/7489554/Fri, 25 Sep 2026 07:00:00 +0000Japan's 2016 negative-rate policy reduced lending from low-profitability banks holding reserves, consistent with lower expected returns on bank assets rather than deposit-side stress. Signature-Based Structural Models and Applications in Credit Marketshttps://www.ml-quant.com/papers/ssrn/7498599/https://www.ml-quant.com/papers/ssrn/7498599/Fri, 25 Sep 2026 07:00:00 +0000The study develops a time-varying signature asset model for structural credit that improves calibration across CDS maturities and equity option prices, especially for high-yield firms. Sell, Hold Out, or Accept: The Creditor's Trilemma in Distressed Debt Exchangeshttps://www.ml-quant.com/papers/ssrn/7502204/https://www.ml-quant.com/papers/ssrn/7502204/Fri, 25 Sep 2026 07:00:00 +0000Analysis of 284 distressed exchanges from 2009-2022 reveals over 50% of firms face subsequent default, with large illiquid creditors trapped in a prisoner's dilemma explaining high acceptance rates. The Global Credit Cyclehttps://www.ml-quant.com/papers/repec/cpr-ceprdp-21268/https://www.ml-quant.com/papers/repec/cpr-ceprdp-21268/Fri, 25 Sep 2026 07:00:00 +0000A nonlinear factor constructed from credit spreads and equity volatility prices global corporate bond returns, explaining up to 13% of three-month-ahead return variation across markets. The credit channel of monetary policy: direct survey evidence from UK firmshttps://www.ml-quant.com/papers/repec/boe-boeewp-023260/https://www.ml-quant.com/papers/repec/boe-boeewp-023260/Fri, 25 Sep 2026 07:00:00 +0000UK firm survey data validates that external borrowers face larger cost-of-capital increases and cut investment more than internal funders when rates rise, accounting for a quarter of monetary policy's total effect.