Banks can deal with their liquidity risk by holding liquid assets (self-insurance), by participating in the interbank … market (coinsurance), or by using flexible financing instruments, such as bank capital (risk-sharing). We study how the … access to an interbank market affects banks' incentive to hold capital. A general insight is that from a risk …

risk outweighed the prospect of additional loss. Banks’ tendency to continue payouts to shareholders after experiencing … negative income shocks are shown to reflect executive risk-taking incentives. …

wrongly) that equity is more costly than debt. ERNs can be introduced within the current regulatory system, but also provide a …

. Consistent with such recourse, we find that conduits provided little risk transfer during the "run": losses from conduits …

We examine the optimal allocation of equity and debt across banks and industrial firms when both are faced with …: excessive risk-taking of banks, credit restrictions banks impose on firms with low equity, and credit restrictions due to high …

, stochastic environment. Keeping the firm as an ongoing concern has an option value but equity and debt holders value it … option approach, we characterize the resulting agency costs of debt, derive the ‘price’ of these costs and analyse their … dynamics. We also show how agency costs can be reduced by the design of debt and the possibility of renegotiation. …

using debt-output ratios and real interest rates. These last two variables emerge as influences on business defaults in the …