regular core capital requirement that helps deter excessive risk-taking incentives. The second tier, a novel aspect of our … framework, is a special capital account that limits risk taking but preserves creditors' monitoring incentives. -- capital … requirements ; leverage ; systemic risk …

hedge to fund drawn credit lines and other commitments. We shed new light on this issue by studying the behavior of bank …

hedge to fund drawn credit lines and other commitments. We shed new light on this issue by studying the behavior of bank …

clears only at fire-sale prices following a large number of bank failures. The gains from acquiring assets at fire …-sale prices make it attractive for banks to hold liquid assets. We show that the resulting choice of bank liquidity is counter … crises may be desirable ex post. However, policies aimed at resolving crises affect ex-ante bank liquidity in subtle ways …

uninnovative). The privately optimal level of bank leverage is neither too low nor too high: It balances efficiently the market … leverage. However, when correlated bank failures can impose significant social costs, regulators may bail out bank creditors …. Anticipation of this generates an equilibrium featuring systemic risk in which all banks choose inefficiently high leverage to fund …

perquisites that yield private benefits). The privately optimal level of bank leverage is neither too low nor too high: It … substitution induced at high levels of leverage. However, when correlated bank failures can impose significant social costs …, governments may have no option but to bail out bank creditors. Anticipation of this generates an equilibrium featuring systemic …