We develop a model to show how shareholder-creditor agency conflicts interact with accounting measurement rules to influence the design of bank capital regulation. Relative to a benchmark autarkic regime, higher capital requirements mitigate inefficient asset substitution, but exacerbate...

We analyze the design and impact of bank regulation using a dynamic structural framework. The optimal regulatory policy combines a target capital requirement, the mitigation of underinvestment, an intervention capital requirement to control inefficient risk-taking, and recapitalization of...

We show that finance influences innovation by young private firms, an important source of long-term economic growth. We develop a simple theoretical model that predicts that a decrease (increase) in banks' bargaining power vis-a-vis entrepreneurs increases (decreases) both the volume and...

We show how shareholder-debtholder agency conflicts interact with strategic reporting under asymmetric information to influence bank regulation. Relative to a benchmark unregulated economy, higher capital requirements mitigate inefficient asset substitution, but potentially exacerbate under...

We develop a theory of how agency conflicts between the shareholders and debt holders of a financial institution, accounting measurement rules, and prudential capital regulation interact to affect the institution's capital structure and project choices. We show that, relative to a benchmark...

We develop a tractable general equilibrium model of banking under aggregate risk. Our novel framework includes the main tools of banking regulation—capital and liquidity requirements, deposit insurance and transfers—and shows how they interact and jointly emerge as an optimal response to the...