[...]This paper aims to fill that gap by providing a simpleframework for analyzing the interactions between the threepillars of Basel II. We start by offering a critical assessment ofthe academic literature on the three pillars,5 and argue thatnone of the existing models allows for a...

We develop a novel dynamic model of banking showing that aggregate bank capital is an important determinant of bank lending. In our model commercial banks finance their loans with deposits and equity, while facing equity issuance costs. Because of this financial friction, banks build equity...

This paper presents a simple model of banking equilibrium in which unconventional monetary policy serves as a tool to enhance the safety of the banking system. Every economy has two intrinsic characteristics: a "natural" debt-equity ratio which depends on the endowments of the infinitely risk...