Banking regulation invites banks to gamble when buying government bonds that regulators consider to be risk-free. The … regulation in order to enhance their fiscal leeway. We examine an unintended side-effect of banking regulation, namely the zero-risk …. By contrast, the EU would benefit from more risk-based macroprudential regulation and a more credible constitutional no …

choose their portfolio risk, bank size, and capital holdings. Banks voluntarily hold equity when the buffer effect against … the risk of default outweighs the cost advantages of debt financing. In the optimum, banks with lower monitoring costs are … larger, choose riskier portfolios, and have less equity. Binding capital requirements or levies on bank borrowing are shown …

balance the benefits of the provision of liquidity services by bank deposits with the costs of bankruptcy. The risk in the …