The headline numbers appear to show that even as banks and financial intermediaries suffered large credit losses in the … banks to lend over this period. We draw conclusions on how capital regulation may be reformed in light of our findings. …

In spite of mounting losses banks continued to pay dividends during the crisis. We present a model that addresses this … behavior. By paying out dividends, a bank transfers value to its shareholders away from creditors, among whom are other banks …. This way, one bank's dividend payout policy affects the equity value and risk of default of other banks. When such negative …

Banks face two different kinds of moral hazard problems: asset substitution by shareholders (e.g., making risky … risk in which all banks choose inefficiently high leverage to fund correlated assets and market discipline is compromised …

Banks face two different kinds of moral hazard problems: asset substitution by shareholders (e.g., making risky … risk in which all banks choose inefficiently high leverage to fund correlated assets and market discipline is compromised …

-optimal capital structure trades off these two costs. With uncertainty about aggregate risk, bank creditors learn from other banks … externality that is ignored in privately-optimal bank capital structures. Thus, under plausible conditions, banks choose excessive …

banks use excessive leverage to fund correlated, inefficiently risky loans. Limiting leverage and resolving both moral …

banks use excessive leverage to fund correlated, inefficiently risky loans. Limiting leverage and resolving both moral …