Bank capital requirements are based on a mix of market values and book values. We investigate the effects of a policy … banking organizations. Our analysis is based on security-level data on individual bank portfolios matched to bond …

are regulated, including the need to obtain a charter to operate and explicit and implicit federal guarantees of bank … liabilities to reduce the probability of bank runs. These aspects of banking affect a bankś choice of risk vs. expected return …, which, in turn, affects bank performance. Banks have an incentive to reduce risk to protect the valuable charter from …