the discipline to induce banks to monitor. However, empirical evidence on how bank capital structure influences borrower … capital structure, we use variation in country-level creditor rights to capture banks' need to monitor their borrowers. We …'s expected loss from not monitoring. Our model also examines how banks alter their capital structures in response to changes in …

, maximize put option value - by pursuing riskier strategies. For safe banks with large charter value, however, the risk …-taking incentive prevailed during 1986-92, a period characterized by serious banking problems and financial turmoil. We find that … highly risky banks. …