This paper examines the process of distress selling and asset market feedback. It splits this process into several stages, in order to analyse what triggers distress selling, why asset prices fall, and how falling prices generate additional rounds of selling. This framework enables us to...

This paper develops a stochastic dynamic model to examine the impact of capital regulation on banks' financial decisions. In equilibrium, lending decisions, capital buffer and the probability of bank failure are endogenously determined. Compared to a flat-rate capital rule, a risk-sensitive...