. Empirically, we find that intermediary leverage is negatively aligned with the banks' Value-at-Risk (VaR). Motivated by the …

Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires … that information about the backing assets - loans - not be revealed, so that bank money does not fluctuate in value …, needed for allocative efficiency. Intermediaries exist to hide such information, so banks select portfolios of information …

We propose a novel mechanism, "financial dampening," whereby loan retrenchment by banks attenuates the effectiveness of … monetary policy. The theory unifies an endogenous supply of illiquid local loans and risk-sharing among subsidiaries of bank … exploiting linkages through BHC-internal capital markets across spatially-separate BHC member-banks. We estimate that retrenching …

that makes risky long-term loans to firms, funded by deposits from savers. Government guarantees create a role for bank …-economic volatility. They redistribute wealth from savers to the owners of banks and non-financial firms. Current capital requirements are …

. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains …, banks make loans, securitize these loans, trade in them, or hold cash. They can also borrow money, using their security … holdings as collateral. We embed such banks in a stylized financial market, in which securitized loans may be mispriced, and …

reduce their idiosyncratic risk through diversification, as in Acharya, Schnabl, and Suarez (2010). Under rational …