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We study optimal capital requirement regulation in a dynamic quantitative model in which nonfinancial firms, as well as households, hold deposits. Firms hold deposits for precautionary reasons and to facilitate the acquisition of production inputs. Our theoretical analysis identifies a novel...
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Banks individually optimize their liquidity risk management, often neglecting the externalities generated by their … choices on the overall risk of the financial system. This is the main argument to support the regulation of liquidity risk … collective risk-taking strategies, which may intensify systemic risk. In this paper we look for evidence of such collective …
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