of deposit insurance adoption on individual bank leverage. Using a panel of banks across 117 countries during the period … 1986-2011, I show that deposit insurance adoption pushes banks to increase significantly their leverage by reducing their … capital buffer. This increase in bank leverage then translates into higher probability of insolvency. Most importantly, I …

process driving financial shocks to the leverage ratio, the responses of output and other aggregates under adaptive learning … are significantly larger than under rational expectations. In our benchmark case calibrated using US data on leverage …, debt-to-GDP and land value-to-GDP ratios for 1996Q1-2008Q4, learning amplifies leverage shocks by a factor of about three …