, however, the bank can readjust the level of risk after the deposit rate is contracted, market discipline leads to an increase …

We analyze optimal risk management strategies for a regulatory restricted bank financed with deposits and equity in an … infinite horizonmodel. The bank has a positive franchise value from rents coming from deposit related services (liquidity … franchise value and the liquidation costs in case of a bank run give the bank a motivation for risk management. The franchise …

whether depositors monitor their banks and withdraw their savings deposits whenever the fundamentals of their bank are no … longer satisfactory. We use a panel of bank-specific data on 250 Swiss banks over the period 1987-1998. We find considerable … evidence of market discipline, in the sense that depositors are sensitive to bank-specific fundamentals, to institutional …