We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced … against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures …

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced … against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures …

We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the period … from January 2006 to June 2010. We find evidence consistent with an impaired transmission channel due to bank risk. Central … bank liquidity does not translate into lower loan spreads for high-risk banks for maturities beyond one year, even as it …

As the number of bank failures increases, the set of assets available for acquisition by the surviving banks enlarges … for liquidation of banking assets. At a sufficiently large number of bank failures, and in turn, at a sufficiently low …

While the too-big-to-fail guarantee is explicitly a part of bank regulation in many countries, this paper shows that … bank closure policies also suffer from an implicit too-many-to-fail problem: when the number of bank failures is large, the … regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank failures is small …

We show that limited liability can induce profit-maximizing bank owners to herd with other banks. When bank loan … returns have a systematic factor, the failure of one bank conveys adverse information about this systematic factor and … increases the cost of borrowing for the surviving banks relative to the situation of no bank failures. Such information …

We show that the likelihood of information contagion induces profit-maximizing bank owners to herd with other banks …. When bank loan returns have a common systematic factor, the cost of borrowing for a bank increases when there is adverse … news on other banks, since such news, in turn, conveys adverse information about the common factor. The increase in a bank …