addressed by an approach to financial regulation that imports its functional foundations more vigorously into the interpretation … and implementation of existing rules. It shows that the general policy goals of prudential banking regulation remain …

failed to influence—federal securities regulation and state corporate law, and the prospective roles for the EMH in these … contexts. In federal securities regulation, the EMH has offered a theoretical construct to accompany the general belief in the …

deteriorate further, which could require significant bank recapitalisation. Updated bottom-up (i.e. loan by loan) stress tests are … assumptions should be made public. The creation of the Bank Asset Management Company (BAMC) should allow recognition of problems …

risk. In this model, banks face taxation, flotation costs of securities, and default costs and maximize shareholder value … regulatory requirements. Our analytic characterization of the bank policy choices shows that imposing solely liquidity … requirements leads to lower bank losses in default at the cost of an increased likelihood of default. Combining liquidity …

risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity … lacking empirical support.We conclude that bank equity is not socially expensive, and that high leverage at the levels allowed … remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy …