more lopsided, as theory here predicts. Uncertainty over the banks stems from their assets, loans and trading assets in … particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems …

This paper investigates the incentives for banks to bias their internally generated risk estimates. We are able to … by low-capital banks to improve regulatory ratios. At the portfolio level, the difference in borrower probability of … credits. In addition, we find that low-capital banks’ risk estimates have less explanatory power than those of high …

This paper empirically investigates banks’ investment allocations over the recent business cycle. I identify … the pre-recession period, banks lend 38 percent of incremental deposits; however, during the downturn, banks favor liquid … assets and lending allocations fall to 22 percent. Banks with low risk tolerance or less access to liquidity are particularly …