by curbing risk-taking incentives, the higher the leverage the bank is permitted to take on. Consequently, the risk …

. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. And while … debtś informational insensitivity may provide valuable liquidity, increased capital (and reduced leverage) can enhance this … benefit. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking …

because it reflects special liquidity benefits of bank debt. Even aside from neglecting the systemic damage to the economy …

it reflects special liquidity benefits of bank debt. Even aside from neglecting the systemic damage to the economy that …

result of debt overhang, shareholders have incentives to resist reductions in leverage that make the remaining debt safer … combined value of the firm to shareholders and creditors. Moreover, debt overhang creates an addiction to leverage through a …We analyze shareholders' incentives to change the leverage of a firm that has already borrowed substantially. As a …

also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly … should be given directly and not in ways that encourage leverage. Finally, suggestions that high leverage serves a necessary …, and that high leverage is not necessary for banks to perform all their socially valuable functions, including lending …

result of debt overhang, shareholders have incentives to resist reductions in leverage that make the remaining debt safer … combined value of the firm to shareholders and creditors. Moreover, debt overhang creates an "addiction" to leverage through a …We analyze shareholders' incentives to change the leverage of a firm that has already borrowed substantially. As a …

We develop a model of the joint capital structure decisions of banks and their borrowers. Strikingly high bank leverage … take on high leverage safely; supply chain effects compel them to do so. Firms with low leverage also arise naturally, as … framework underlie our model, we can quantify the impact capital regulation and other government interventions have on leverage …