This study examines the impact of strengthening bank capital supervision on bank behavior in the incomplete and complete enforcement of regulations. In a dynamic model of banks facing idiosyncratic shocks, banks accumulate regulatory capital and decrease charter value and lending in the short...

I study capital requirements (CRs) and their welfare implications in a dynamic general equilibrium model of banking. Two features characterize my model. Firstly, banks choose entry and exit, which lets the number of banks change endogenously. Secondly, since equity issuance is costly, banks...