This paper reports estimates of the long-run costs and benefits of banks funding more of their assets with loss … of the benefits from having banks use more equity no estimate of costs--however accurate--can tell us what the optimal … level of bank capital is. We use empirical evidence on UK banks to assess costs; we use data from shocks to incomes from a …

We develop a dynamic model to assess the effects of liquidity and leverage requirements on banks' insolvency risk. The … model features endogenous capital structure, liquid asset holdings, payout, and default decisions. In the model, banks face …. Using the model, we show that liquidity requirements have no long-run effects on default risk but may increase it in the …

This paper studies the impact of competition on the determination of interest rates, and on banks’ risk taking … lower entry costs foster competition in deposit rates and reduce banks’ incentives to limit risk exposure. While higher …

During the recent financial crisis, central banks have provided liquidity and governments have set up rescue programmes … bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity and monitors too little. A … central bank can alleviate the liquidity problem, but induces moral hazard. Therefore, we introduce an additional authority …

In August of 2007, banks faced a freeze in funding liquidity from the asset-backed commercial paper (ABCP) market. We … investigate how banks scrambled for liquidity in response to this freeze and its implications for the real economy. Commercial … banks in the United States raised deposits and took advances from Federal Home Loan Banks (FHLBs). In contrast, foreign …

Bailout expectations have led banks to behave imprudently, holding too little capital and relying too much on short … to liquidity assistance as a solution to forbearance. Faced with a bank that chooses capital and liquidity, the … institution providing liquidity assistance can commit to a mixed strategy: never bailing out is too costly and therefore not …

Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The … liquidity insurer is not one of the passive recipient, but of an active seeker, of deposits. We find that banks facing a funding … standard argument - that banks can - hinges on deposit inflows that are seeking a safe haven and provide banks with a natural …

global liquidity creation by key central banks and, second, an ex-ante global saving glut, brought about by the entry of a … England’s liquidity management, regulatory failure of the FSA, an inadequate deposit insurance arrangement and deficient …

banks have provided liquidity and ministries of finance have set up rescue programmes to restore confidence and stability …. Using a model of a systemic bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity … and takes excessive risk compared to the social optimum. A Lender of Last Resort can alleviate the liquidity problem, but …