Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of … banking with moral hazard, we show that second best bank contracts that improve on autarky ex ante require costly crises to … occur with positive probability at the interim stage. When bank payoffs are partially appropriable, either directly via …

integration of commercial and investment banking in one organizational unit where bank managers accomplish both activities. We … other task. When there is no managerial moral hazard, it is not optimal for the bank to form a conglomerate. We show that … under managerial moral hazard, forming a conglomerate may be in the bank's interest because it may entail lower agency costs …