We consider a price-mediated contagion framework in which each bank, after an exogenous shock, may have to sell assets in order to comply with regulatory constraints. Interaction between banks takes place only through price impact. We characterize the equilibrium of the strategic deleveraging...

We offer a stress test framework in which interaction between regulated banks occurs through pecuniary externalities when they delever. Since banks are constrained to maintain their capital ratio higher than a threshold, the deleveraging problem yields a generalized game in which the solvency...