The game-theoretical analysis of this paper shows that stress tests that cover the entire banking sector (macro stress tests) can be performed by institutional supervisors to improve welfare. In a multi-receiver framework of Bayesian persuasion we show that a banking authority can create value...

This paper analyses whether the introduction of capital requirements for bank government bond holdings increases financial stability by making the banking sector more resilient to sovereign debt crises. Using a theoretical model, we show that a sudden increase in sovereign default risk may lead...

Overview -- A survey of literature on optimal capital requirements for banks -- Testing the Modigliani-Miller theorem of capital structure irrelevance -- For banks -- Benefits and costs of higher capital requirements for banks -- Total loss-absorbing capacity (TLAC) for large banks -- A critical...