This paper provides evidence for regulatory arbitrage within the class of assetbacked securities (ABS) based on individual asset holding data of German banks. I find that those banks operating with tight regulatory constraints pick the securities with the highest yield and lowest collateral...

We study how optimal bank capital and bond risk are influenced by deposit insurance, implicit guarantees, depositor preference, asset encumbrance, and bail-in resolution frameworks. We find that these features of bank financing change the optimal amount of bank capital. The net effect on bond...