This paper provides an explanation for the observation that banks hold on average a capital ratio in excess of regulatory requirements. We use a functional approach to banking based on Diamond and Rajan (2001) to demonstrate that banks can use capital ratios as a strategic tool for renegotiating...

This paper compares bank regulation and supervision in Japan and Germany. We consider these countries because they both have bank-dominated financial systems and their banking systems are often lumped together as one model, yet, bank stability differs significantly. We show that Japan and...

This paper asks why Japan has not yet suffered from a sovereign debt crisis, although its gross public debt as a percentage of GDP is much higher than in Greece. We use a simple stylized model to explain the occurrence of both a fundamental and a speculative debt crisis. We apply this model to...

The paper provides a simple model for interbank loans. Since interbank trades are usually over-the-counter transactions, we use a bilateral bargaining model and apply the Nash bargaining solution. We determine the threat points and the bargaining frontier of debtor and creditor banks. We ask...

We comment on an article published in this journal by <link rid="b1">Hefeker (2003)</link> and reveal an inconsistency in his analysis of monetary policy in federal monetary unions. We clarify an implicit assumption in his model and show that even when this further assumption is met, <link rid="b1">Hefeker's (2003)</link> claim that a...

This paper analyzes the incentive effects of special bank resolution schemes which were introduced during the recent financial crisis. These schemes allow regulators to take control over a systemically important financial institution before bankruptcy. We ask how special resolution schemes...