Relying on theories in which bank loans create deposits—a process we call “funding liquidity creation”—we measure how … constrained by the supply of cash deposits. During the 2001-2020 period, 92% of bank deposits were due to funding liquidity …

diminish the value of the bank's core intermediation service? Using a banking model in which borrowers face production output …, thereby enhancing liquidity creation and the value of intermediation. Higher bank capital leads to more trading states and … that subsidizes sellers or a (selective) subsidy for buyers. Central bank loan purchases can also improve welfare …

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 …

steady growth following the crisis. We find that bank CEO pay is sensitive to ROE and stock return, but not to ROA. Bank CEOs … metrics than non-bank financial or non-financial CEOs. In terms of the level of pay, bank CEOs earn less than both non-bank … financial and non-financial firm CEOs. The lower relative bank CEO pay is driven by lower salary, nonequity incentive and stock …

aggregate lending. The model predicts that the bank's decision to lend will cause an abnormal runup in the borrower's stock … price and that this reaction will be greater the more capital-constrained the bank. I provide empirical support for this … prediction. The model explains the recent inability of the Federal Reserve to stimulate bank lending by increasing the money …

perquisites that yield private benefits). The privately optimal level of bank leverage is neither too low nor too high: It … substitution induced at high levels of leverage. However, when correlated bank failures can impose significant social costs …, governments may have no option but to bail out bank creditors. Anticipation of this generates an equilibrium featuring systemic …

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced … against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures …

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced … against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures …

We consider a model in which the threat of bank liquidations by creditors as well as equity-based compensation … incentives both discipline bankers, but with different consequences. Greater use of equity leads to lower ex ante bank liquidity …, whereas greater use of debt leads to a higher probability of inefficient bank liquidation. The bank's privately …