(NPV) projects as given, which in turn determines the size of the firm’s assets. The focus is on the composition of equity … equity that behaves like the predetermined variable, and the asset size of the bank or financial intermediary is determined … by the degree of leverage that is permitted by market conditions. The relative stickiness of equity reveals possible …

this channel, one bank's capital policy affects the equity value and risk of default of other banks. In a model where such … dividends and inefficient recapitalization relative to the efficient policy that maximizes banking sector equity. We compare the …