The supplementary leverage ratio (SLR) rule recently imposed on the very largest U.S. banks has revived the question of whether banks sidestep such rules by shifting toward riskier, higher-yielding assets. Using difference-in-difference analysis, we find that, after the SLR was finalized in...

Consumer protection and financial literacy are essential pillars of a well functioning and stable financial system. As the global financial crisis demonstrated, inadequate attention to consumer protection and financial literacy can lead to financial instability. Though Shari'ah principles...

This study develops a multi-period structural model to value bank subordinated debt (subdebt) under different regulatory policies. The model provides a complete framework for analyzing how various factors, such as credit and interest rate risks, bank characteristics and regulatory policies...

This paper illustrates channels by which regulations that require banks to hold liquid assets can either increase or decrease a bank's incentive to take risk with its remaining ineligible assets. A greater capacity to respond to liquidity stress increases the potential profits a bank would put...

This paper investigates the effectiveness of supervisory discipline on bank risk over the years immediately before, during and just after the recent crisis. It is the first study to consider the effects of informal supervisory enforcement actions in addition to formal actions. Informal...

We study the influence of unsecured debt (subdebt) and of bail-in debt on banks' risk-taking in a contingent claim model, while considering the bargaining between stockholders and debtholders. We show that replacing stock with subdebt: (1) leads to fewer risk-shifting events, but generates a...

The recent crisis has shown that systemically relevant banks in distress are likely to benefit from governmental support. This reduces their downside risk and leads to moral hazard, i.e. to incentives for these banks to assume excessive risks. In this paper we show empirically that implicit...

This paper investigates the impact of regulatory stress test framework in the European Union on the banks conduct and portfolio adjustments. Our findings suggest that the banks subject to regulatory stress testing tend to structure their portfolios with lower risk density. However this does not...