financial capital so that it can logically serve as a cushion against insolvency for potentially risk-averse managers and as a … signal of risk for less informed outsiders. This allows scale economies to be computed without assuming that the bank chooses … authors find evidence that bank managers are risk averse and use the level of financial capital to signal the level of risk …

(1998). They impose capital requirements on banks and calibrate the regulation using the Basel II risk-weight formula …

. The distinctive nature of this debt generates an unusual degree of liquidity risk that can, at times, threaten the … contract and deposit insurance, bank regulation constrains risk-taking and defines standards of capital adequacy. The inherent … liquidity risk of demandable debt as well as potential regulatory penalties for poor financial performance creates the potential …

discount window is administered. Risk aversion can complicate these linkages considerably, even causing some banks to prefer a …

This paper explores how to incorporate banks' capital structure and risk-taking into models of production. In doing so … holding companies. Modeling the banks' objective as value maximization conveniently incorporates both market-priced risk and … critically on how banks' capital structure and risk-taking is modeled. In particular, when equity capital, in addition to debt …