This paper presents a model of a banking industry with heterogeneous banks that delivers predictions on the relationship between banks'' risk of failure, market structure, bank ownership, and banks'' screening and bankruptcy costs. These predictions are explored empirically using a panel of...

We study a simple general equilibrium model in which investment in a risky technology is subject to moral hazard and banks can extract market power rents. We show that more bank competition results in lower economy-wide risk, lower bank capital ratios, more efficient production plans and...

We build a stylized dynamic general equilibrium model with financial frictions to analyze costs and benefits of capital requirements in the short-term and long-term. We show that since increasing capital requirements limits the aggregate loan supply, the equilibrium loan rate spread increases,...

The predictive relationship between banks' Tobin Q and a theory-based measure of bank risk of insolvency is highly non-linear. Using large samples of publicly quoted banks in the US, Europe, and Asia during 1985-2017, we find that higher values of Q predict lower bank risk of insolvency up to...

This paper studies the high and persistent U.S. cost of financial intermediation (CFI) documented by Philippon (2015) and its inverted U-shape behavior since the mid-1960s. We build a novel model of endogenous growth and bank intermediation and introduce imperfect bank competition, bank IT...