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 … that is able to bail out the bank either by injecting capital at a fixed return or by receiving an equity claim. This …

the market for bank loans and how a central can compensate such shocks. The need for unconventional measures derives from … the size of these shocks and the zero lower bound of the central bank's policy rate. Under such conditions the central … bank can only stabilize the loan market by providing direct loans to the non-bank sector. A by-product of this approach is …

The recent crisis has led to a thriving academic and policy debate on the future regulation of financial institutions … market-restricting approach to regulation; it would imply price-based capital and liquidity regulation, rather than …

Banking regulation has proven to be inadequate to guard systemic stability in the recent financial crisis. Central …. Using a model of a systemic bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity … induces moral hazard. Therefore, we introduce a fiscal authority that is able to bail out the bank by injecting capital. This …

particular, we show that the stock market applies far greater discounts to a bank’s real estate loans and mortgage … suggests that bank balance sheets overvalue real estate related assets during economic slowdowns. Estimated discounts are … impairment. We also find that bank share prices, especially for banks with large exposures to mortgage-backed securities, react …

regulation is shown to operate at a collective level, regulating each bank as a function of both its joint (correlated) risk with … liability of banks and the presence of a negative externality of one bank’s failure on the health of other banks give rise to a … risk. Regulatory mechanisms such as bank closure policy and capital adequacy requirements that are commonly based only on a …

We model the interaction between two economies where banks exhibit both adverse selection and moral hazard and bank … regulators try to resolve these problems. We find that liberalizing bank capital flows between economies reduces total welfare by … considerations arise in this context. Allowing multinationals improves welfare when bank capital can flow across borders, despite the …

This Paper analyses the determinants of regulatory capital (the minimum required by regulation) and economic capital … (the capital that shareholders would choose in absence of regulation) in the context of the single risk factor model that …

The merit of having international convergence of bank capital requirements in the presence of divergent closure … policies of different central banks is examined. While the privately optimal level of bank capital decreases with regulatory … forbearance (they are strategic substitutes), the socially optimal level of bank capital increases with regulatory forbearance …

-ante standpoint. We formalize this time-inconsistency of bank regulation. We also argue that by allowing banks to purchase failed …This Paper shows that bank closure policies suffer from a ‘too-many-to-fail’ problem: when the number of bank failures … is large, the regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank …