uninnovative). The privately-optimal level of bank leverage is neither too low nor too high: It balances effi ciently the market … leverage. However, when correlated bank failures can impose significant social costs, regulators may bail out bank creditors … making bank debt too safe. The optimal capital regulation requires that a part of bank capital be unavailable to creditors …

This paper studies how a worsening of the debt overhang distortion on bank lending can explain banking solvency crises … that are accompanied by a plunge of bank asset values and by a severe contraction of lending and economic activity. Since … the value of bank assets depends on economic prospects, a pessimistic view of the economy can be self-fulfilling and can …

credit risk spread in money markets. …

Environment (SAFE) EWS monitors microprudential information from the largest bank holding companies to anticipate the buildup of …

daily public-market data collected from four sectors of the fi nancial markets—the credit, foreign exchange, equity, and …

that debt led to the failure of numerous brokerage houses, precursor to the modern investment bank. During the Panic of …