The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk asserts. We show that this undermines the traditional result that high capital reduces excess risk-taking driven by limited liability. Moreover, higher capital may have an...

Perotti reviews the state of thinking on the governance role of state ownership. He argues that a gradual transfer of operational control and financial claims over state assets remains the most desirable goal, but it needs to be paced to avoid regulatory capture, and the capture of the...