In this paper, we argue for a regulatory framework under which a bank’s required level of equity capital depends on the equity capital of its peers. Such bankingon- the-average rules are transparent and could also be combined with the current regulatory framework. In addition, we argue that...

We provide a rationale for bank money creation in our current monetary system by investigating its merits over a system with banks as intermediaries of loanable funds. The latter system could result when CBDCs are introduced. In the loanable funds system, households limit banks' leverage ratios...

We examine the impact of so-called "Crisis Contracts" on bank managers' risktaking incentives and on the probability of banking crises. Under a Crisis Contract, managers are required to contribute a pre-specified share of their past earnings to finance public rescue funds when a crisis occurs....

In this paper, we argue for a regulatory framework under which a bank’s required level of equity capital depends on the equity capital of its peers. Such bankingon- the-average rules are transparent and could also be combined with the current regulatory framework. In addition, we argue that...

We study stable matchings on exogenously given or endogenously formed bipartite graphs that reflect constraints on matching. The effects of a change of the exogenously given graph (constraints) are investigated. Specifically, we examine to what extent individuals gain or lose from relaxing...

We integrate bank and bond financing into a two-sector neoclassical growth model to examine the stabilization effect of endogenous bank leverage adjustment. We show that although bank leverage amplifies shocks, the increase of leverage to a decline in bank equity is an automatic stabilizer in...

We provide a rationale for bank money creation in our current monetary system by investigating its merits over a system with banks as intermediaries of loanable funds. The latter system could result when CBDCs are introduced. In the loanable funds system, households limit banks' leverage ratios...

I explore the functioning of inside money competition in an overlapping generations model to address the question of whether the base of currency supply should be a monopoly. In such an economy, banks enhance allocative efficiency by offering short-term contracts (banknotes) in order to finance...

We study how the financial intermediation sector interacts with the real sector over the business cycle. We examine an overlapping generations model in which financial intermediaries can alleviate agency problems of entrepreneurs. We identify the conditions under which deteriorating balance...