This article derives a model of self-regulation where banks issue insurance products to hedge their leverage ratio. This approach is an alternative policy to Basel regulation for controlling systemic risk without increasing equity level. We show some conditions under which the model can be...

This article derives a model of self-regulation where banks issue insurance products to hedge their own leverage ratio. This approach is an alternative policy to Basel regulation for controlling systemic risk without increasing equity level.Then, we construct two insurability indicators...