KOCHERLAKOTA, NARAYANA R.; SHIM, ILHYOCK - In: Journal of Money, Credit and Banking 39 (2007) 5, pp. 1107-1129
This article investigates whether a bank regulator should terminate problem banks promptly or exercise forbearance. We 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...