Acharya, Viral V.; Mehran, Hamid; Thakor, Anjan V. - Federal Reserve Bank of Cleveland - 2010
uninnovative). The privately-optimal level of bank leverage is neither too low nor too high: It balances effi ciently the market … leverage. However, when correlated bank failures can impose significant social costs, regulators may bail out bank creditors … making bank debt too safe. The optimal capital regulation requires that a part of bank capital be unavailable to creditors …