This paper develops a dynamic general equilibrium model to quantify the effects of bank capital requirements. Households' preferences for liquid assets imply a liquidity premium on deposits. The banking sector supplies deposits and has excessive risk-taking incentives. I show that the scarcity...

Data from U.S. public firms show that in booms large firms finance with debt and payout equity, while small firms issue both equity and debt. Therefore, large firms generally substitute between debt and equity financing over the business cycle, whereas small firms' financing policy for debt and...

This paper presents a quantitative dynamic general equilibrium model for the purpose of determining the optimal capital requirement for banks. Banks contribute to the production of a final good and they provide liquidity in the form of bank debt, which households value. Banks also benefit from...