We analyze the determinants of regulatory capital (the minimum required by regulation), economic capital (that chosen by shareholders without regulation), and actual capital (that chosen with regulation) in a dynamic model of a bank with a loan-portfolio return described by the...

This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn and a lender of last resort (LLR) that bases its decision on supervisory information on the quality of the bank’s assets. The bank is subject to a capital requirement and chooses the liquidity...