This paper analyzes the role of liquidity regulation and its interaction with capital requirements. We first introduce costly capital in a bank run model with endogenous bank portfolio choice and run probability, and show that capital regulation is the only way to restore the efficient...

We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited...

We characterize welfare maximizing capital requirement policies in a quantitative macro-banking model with household, firm and bank defaults calibrated to Euro Area data. We optimize on the level of the capital requirements applied to each loan class and their sensitivity to changes in default...

We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited...

We examine the optimal size and composition of banks’ total loss absorbing capacity (TLAC). Optimal size is driven by the trade-off between providing liquidity services through deposits and minimizing deadweight default costs. Optimal composition (equity vs. bail-in debt) is driven by the...