bank's financing structure. In our model the bank's assets consist of illiquid loans and liquid reserves and are financed … to an exogenous rollover risk. We show that the use of repos inflicts two types of indirect (“shadow”) costs on the bank …'s shareholders: first, it induces the bank to maintain higher liquid reserves in order to alleviate the additional default risk …

regulatory requirements. Our analytic characterization of the bank policy choices shows that imposing solely liquidity … requirements leads to lower bank losses in default at the cost of an increased likelihood of default. Combining liquidity … requirements with leverage requirements reduces drastically both the likelihood of default and the magnitude of bank losses in …

CoCo bonds provides the same reduction in bank default risk as the corresponding issuance of common equity by analyzing the …Following the 2008-9 financial crisis, large banks increasingly issued contingent convertible bonds (CoCo bonds) to … increase their capital buffers – a policy supported by national bank regulators. This paper examines whether the issuance of …

We develop a novel dynamic model of banking showing that aggregate bank capital is an important determinant of bank …. Because of this financial friction, banks build equity buffers to absorb negative shocks. Aggregate bank capital determines …

, the equilibrium loan rate spread increases, which raises bank profitability and the market-to-book value of bank capital … model’s dynamic implications in a panel VAR estimation, which suggests that bank lending has even increased in the long …

contributes to the current debate on the optimal scope of bank activities, and highlights novel channels through which …