In the presence of macroeconomic shocks severe enough to threaten the liquidity or solvency of the banking system, the regulator can rely on the funds concentration effect to save long-term investment projects. Some banks are forced into bankruptcy with the result that other banks obtain more...

We study the consequences and optimal design of bank deposit insurance in a general equilibrium model. The model involves two production sectors. One sector is financed by issuing bonds to risk-averse households. Firms in the other sector are monitored and financed by banks. Households fund...

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 study how bankers can elicit lower capital requirements via lobbying: Bankers pledge to politicians a lobbying rate as a fraction of bank revenues, thus relating politicians' welfare to the size of banks. This induces politicians to lower capital requirements, which causes high leverage...

We study the consequences and optimal design of bank deposit insurance in a general equilibrium model. The model involves two production sectors. One sector is financed by issuing bonds to risk-averse households. Firms in the other sector are monitored and financed by banks. Households fund...

We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values instead of the classical approach by Merton with geometric Brownian motions. We develop an analytical expression for the default probability. Our simulation results indicate that...

We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers’ remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more...

We examine the validity of a macroeconomic version of the Modigliani-Miller theorem. For this purpose, we develop a general equilibrium model with two production sectors, risk-averse households and financial intermediation by banks. Banks are funded by deposits and (outside) equity and monitor...

We examine the validity of a macroeconomic version of the Modigliani–Miller theorem. By this, we mean that different capital structures can occur in equilibrium and that all of them are associated with the same allocation of commodities and the same welfare. We develop a general equilibrium...

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...