of collateralized risky debt. The presence of moral hazard creates a link between the volatility in bank asset returns … and bank leverage. We find that, while standard TFP shocks fail to replicate the volatility and cyclicality of leverage …

Loan guarantees represent a form of government intervention to support bank lending. However, their use raises concerns … as to their effect on bank risk-taking incentives. In a model of •nancial fragility that incorporates bank capital and a … bank incentive problem, we show that loan guarantees reduce depositor runs and improve bank underwriting standards, except …

This paper examines common regulation as cause of interbank contagion. Studies based on the correlation of bank assets … that banks have a common regulator. In our model, the failure of one bank can undermine the public's confidence in the … forbearance to the initially failing bank in the hope that it - and hence other vulnerable banks - survives. By contrast, public …

The primary driver of commercial bank failures during the Great Recession was exposure to the real estate sector, not …