a decrease in bank equity risk. We show theoretically, that keeping less capital in excess of the minimum capital … requirement can outweigh the risk-reducing effect on equity of increased total capitalization. Empirically, we find that excess … capitalization is a significant determinant of equity risk, and can explain why bank equity risk has not become lower after the Great …

We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk … incomplete in the sense of containing an uninsurable background risk, such as a risk on labor income. We extend our model to show … averse, we determine conditions on the changes in asset risk that are both necessary and sufficient for the asset price to …