regulatory requirements. Our analytic characterization of the bank policy choices shows that imposing solely liquidity … requirements leads to lower bank losses in default at the cost of an increased likelihood of default. Combining liquidity … requirements with leverage requirements reduces drastically both the likelihood of default and the magnitude of bank losses in …

economy to the verge of collapse. This Article makes three contributions to understanding how this pandemic of excessive bank … counters the common narrative that blames the crisis on managerial moral hazard. Instead, it focuses on bank shareholders and … debtholders, arguing that their distorted incentives drove banks to take excessive risks. Corporate finance theory teaches that …