There is a tradition in the banking industry of dividing risk into market risk and credit risk. Both categories are treated independently in the calculation of risk capital. But many financial positions depend simultaneously on both market risk and credit risk factors. In this case, an...

We analyze the impact of capital adequacy regulation on bank insolvency and aggregate investment. We develop a model of the banking system that is characterized by the interaction of many heterogeneous banks with the real sector, interbank credit relations as a consequence of bank liquidity...

The term Systemic Risk belongs to the standard rhetoric of economic policy discussions related to the banking industry. Besides the goal of protecting small depositors, control of systemic risk is given as one of the main arguments for banking regulation. Various recent financial crises have...