This paper presents a model of the portfolio and financing adjustments of U.S. banks over the business cycle. At the core of the model is a moral hazard problem between depositors/bank regulators and stockholders. The solution to this problem takes the form of shared management of the bank....

What factors cause banks to lend to the private sector in a bank-based financial system like the ones in place in Europe? In this paper we compare a traditional demand oriented model to a non-traditional capital budgeting model of bank lending based on movements in the equity cost of capital for...