We present a simple model of an economy with heterogeneous banks that may be funded with uninsured deposits and equity … supply of bank capital and show that optimal capital requirements should be lowered. Failure to do so would keep banks safer …

requirements in the context of a dynamic equilibrium model of relationship lending in which banks are unable to access the equity … markets every period. Banks anticipate that shocks to their earnings as well as the cyclical position of the economy can … cyclical adjustments in the confidence level behind Basel II can reduce its procyclical effects without compromising banks …

growth. Our discussion concludes that the latter is better in terms of simplicity, transparency, and consistency with banks …

In this paper, we examine the relationship between banks’ approval for the internal ratings-based (IRB) approaches of … Basel II and the ratio of risk-weighted over total assets. Analysing a panel of 115 banks from 21 OECD countries that were …-weight manipulation, we find the decline in risk-weights to be particularly prevalent among weakly capitalised banks, when the legal …

We address the following questions concerning bank capital: why are banks so highly levered, what are the consequences … promote ex post financial stability but also create perverse incentives for banks to engage in correlated asset choices ex … Treasuries, accrues to the bank’s shareholders as long as the bank is solvent, and accrues to the regulators (rather than the …

Banks’ behaviour can be influenced by both monetary policy and regulatory capital requirements. This paper explores the … interaction between these two policy tools in promoting better lending decisions by banks. We develop and calibrate a model of …

We propose a new form of hybrid capital for banks, Equity Recourse Notes (ERNs), which ameliorate booms and busts by … creating counter-cyclical incentives for banks to raise capital, and so encourage bank lending in bad times. They avoid the … the too-big-to-fail problem: rather than forcing banks to increase equity, we should require the same or larger capital …