We analyze the impact of the Volcker Rule on a bank's earnings and default probability by using a stochastic control model where the bank maximizes its value by selecting an optimal dividend, recapitalization, and investment strategy. We calibrate the model to a sample of U.S. banks. Since the...

Banks' assets are opaque, and therefore, we model their true accounting asset values as partially observed variables. We derive a stochastic control model to optimize banks' dividend and recapitalization policies in this situation, and calibrate that to a sample of U.S. banks. By the calibrated...

This paper contains a testing framework for the reliability of systemic risk measurement of banks, using the three leading market-based measures of systemic risk. We test whether the difference within the same category and across dfferent categories of systemic risk of individual banks is...

We study the effects on credit allocation and bank stability of introducing a leverage ratio requirement (LRR) on top of risk-based capital requirements, as in Basel III. For the current 3% LRR, both low-risk and high-risk loan rates and volumes remain essentially unchanged, because banks...

This paper tests how closely the three leading market-based systemic risk measures (SRM) agree with the list of global systemically important banks (G-SIB) from the Financial Stability Board (FSB) and how closely they match the categorization of G-SIBs into the five systemic risk buckets used by...

Basel III has introduced a non-risk-weighted leverage ratio requirement (LRR) which complements the internal ratings based (IRB) capital requirements. It provides a backstop against model risk which arises if some loans get incorrectly rated and become toxic. We study the effects of the LRR on...