This paper studies the quantitative impact of microprudential bank regulations on bank lending and value metrics of efficiency and welfare in a dynamic model of banks that are financed by debt and equity, undertake maturity transformation, are exposed to credit and liquidity risks, and face...

We study optimal bank regulation in an economy with aggregate uncertainty. Bank liabilities are used as “money” and hence earn lower returns than equity. In laissez faire equilibrium, banks maximize market value, trading off the funding advantage of debt against the risk of costly default....

Contrary to public perception and previous literature on public bailout subsidies, we find over the recent 43-year period equityholders in big banks paid fairly for TBTF bailout insurance in terms of equity returns. In normal (non-crisis) periods, after TBTF in 1984, big banks pay an...

We study lottery behavior in banking stocks and use MAX/MIN to capture loss protection from bank bailout guarantees. We find that bank lottery preferences lead to lower short-term returns and that regulatory TARP assistance increases the likelihood of bank lotteryness and risk taking....