markets (coinsurance), or by using flexible financing instruments, such as bank capital (risk-sharing). We use a simple model … less active on interbank markets. Therefore, we test for the existence of a negative relationship between bank capital and …

This paper analyzes the effects of bank manager’s incentive pay on financial stability. Two banks are owned by risk …-neutral principals and run by risk-averse managers that determine the level of leverage and how much to diversify into the other bank …. In equilibrium, even if the principal represents the interests of all stakeholders of an individual bank, the contract …