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 …

-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 …

As the number of bank failures increases, the set of assets available for acquisition by the surviving banks enlarges … for liquidation of banking assets. At a sufficiently large number of bank failures, and in turn, at a sufficiently low … and allowing the regulator to price-discriminate against outsiders in the market for bank sales. …

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 …

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 …

A regulator resolving a bank faces two audiences: depositors, who may run if they believe the regulator will not …

dynamics of prices on which minimum capital requirements are based raises important implications for the regulation of …