This paper characterizes the optimal linear financial transaction tax in an equilibrium model of competitive financial markets. When belief disagreement induces excess trading on assets in fixed supply, two main results arise. First, the optimal tax is positive: although a (small) transaction...

Banks create excessive systemic risk through leverage and maturity mismatch, as financial constraints introduce welfare-reducing pecuniary externalities.  Macroprudential regulators can achieve efficiency with simple linear constraints on banks' balance sheets, which require less information...

The 2007-9 .financial crisis began with increased uncertainty over funding conditions in money markets. We show that funding uncertainty can explain diverse elements of commercial banks behaviour during the crisis, including:(i) reductions in lending volumes, balance sheets, and...