Shim, Ilhyock; Kocherlakota, Narayana - Bank for International Settlements (BIS) - 2005
construct a dynamic model economy in which entrepreneurs pledge collateral, borrow from banks, and invest in long-term projects …. We assume that collateral value has aggregate risk over time, that in any period entrepreneurs can abscond with the … projects but losing the collateral, and that depositors can withdraw deposits. We show that optimal regulation exhibits …