This paper examines whether banks strategically incorporate their competitors' liquidity mismatch policies when determining their own and how these collective decisions impact financial sector stability. Using a novel identification strategy exploiting the presence of partially overlapping peer...

We modify the Diamond and Dybvig (1983) model of banking to jointly study various regulations in the presence of credit and run risk. Banks choose between liquid and illiquid assets on the asset side, and between deposits and equity on the liability side. The endogenously determined asset...