Today’s regulatory rules, especially the easily-manipulated measures of regulatory capital, have led to costly bank … failures. We design a robust regulatory system such that (i) bank losses are credibly borne by the private sector (ii …) systemically important institutions cannot collapse suddenly; (iii) bank investment is counter-cyclical; and (iv) regulatory …

privately-optimal level of bank leverage is neither too low nor too high: It efficiently balances the market discipline that … of leverage. However, when correlated bank failures can impose significant social costs, regulators may bail out bank … this also compromises market discipline by making bank debt too safe. Optimal capital regulation requires that a part of …

This Paper shows that bank closure policies suffer from a ‘too-many-to-fail’ problem: when the number of bank failures … is large, the regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank …-ante standpoint. We formalize this time-inconsistency of bank regulation. We also argue that by allowing banks to purchase failed …

bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity and monitors too little. A … central bank can alleviate the liquidity problem, but induces moral hazard. Therefore, we introduce an additional authority … that is able to bail out the bank either by injecting capital at a fixed return or by receiving an equity claim. This …

the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads … and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to … CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their sovereign …

. Using a model of a systemic bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity … induces moral hazard. Therefore, we introduce a fiscal authority that is able to bail out the bank by injecting capital. This … authority faces a trade-off: when it imposes strict bailout conditions, investment increases but moral hazard ensues. Milder …

We analyse a model in which bank deposits are insured and there is an exogenous cost of bank capital. The former effect … results in bank over-investment and the latter in under-investment. Regulatory capital requirements introduce investment … upon the home bank’s riskiness, the extent of international diversification, and the liability structure (branch or …

guarantees, and provision of unrestricted liquidity support. In the context of a simple model of information-based bank runs … any of these policies leads to a reduction in the interest rate of uninsured deposits and in the bank’s incentives to take …

This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn, and a lender of last … resort (LLR) that bases its decision on supervisory information on the quality of the bank’s assets. The bank is subject to a …. Moreover, when the LLR does not charge penalty rates, the bank chooses the same level of risk and a smaller liquidity buffer …