The role that banks play in screening and monitoring their borrowers is well understood. However, these bank activities … question – who monitors the monitor? Financial intermediation theories posit that bank capital structure plays such a role in … incentivizing banks to monitor their borrowers. Both bank debt and bank equity have been proposed in various theories as providing …

This paper develops a theory in which heterogeneity in bank capital choices arises in a general equilibrium despite ex … continued access to funding liquidity but low-capital banks do not. Inter-bank trading in legacy assets allows some frozen banks … market funding from low-capital to high-capital banks. Inter-bank trading unfreezes the market without government …

driving outcomes. Everybody consequently becomes sanguine about bank risk, credit spreads decline, and banks choose …

driving outcomes. Everybody consequently becomes sanguine about bank risk, credit spreads decline, and banks choose …

equity and towards deposits when creditor rights become stronger. These results suggest that bank equity, rather than … in bank leverage affect bank risk-taking. We find that increases in creditor rights increase bank risk-taking, but only …