busts in asset prices or (iii) to implement optimal commitment policies. …

direct spillovers from one bank to another: liquidity hoarding, asset price contagion, and the propagation of defaults via … counterparty credit risk. Importantly, we also introduce a mechanism for capturing how swings in ‘confidence’ in the system may …, but also from their effect on confidence in the system. Imposing tougher capital requirements on larger banks than smaller …

Traditionally, regulation of banks has focused on the riskentailed in bank loans. Loans are typically nontradedassets …. In recent years, another component of bank assetshas become increasingly important: assets actively tradedin the … financial markets.1 These assets form the “tradingbook” of a bank, in contrast to the “banking book,” whichincludes the …