This paper addresses the trade-off between additional loss-absorbing capacity and potentially higher bank risk …

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 …

equilibrium is characterized by a deep market with highly leveraged banks. The crisis times equilibrium is characterized by bank …

consequences of the liquidity stress to the solvency ratio; (ii) quantify the liquidity deficit that a central bank should …

. Second, while higher bank capital requirements decrease default risk and funding costs, they make it also more profitable to …

How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject … to rollover risk. A bank’s optimal borrowing trades off the benefit from investing additional funds into profitable assets … with the cost of greater risk of a run by bank creditors. Changes in the interest rate affect the price and amount of …