The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor's point of view since...

We quantify the gains from regulating maturity transformation in a model of banks which finance long-term assets with non-tradable debt. Banks choose the amount and maturity of their debt trading off investors' preference for short maturities with the risk of systemic crises. Pecuniary...

Stress-tests provide complementary information about banks’ risk exposures. Recent empirical evidence, however, has uncovered potential inaccuracies in stress-test based assessments. We investigate the regulatory implications of these inaccuracies. Without stress-tests, the regulator cannot...

Recognizing that many banks suffered trading losses that notably exceeded their minimum capital requirements during the recent crisis, the Basel Committee on Banking Supervision (2011) revised its regulatory framework for trading portfolios. In this paper, we compare: (1) the relative...

In this paper, we argue for a regulatory framework under which a bank’s required level of equity capital depends on the equity capital of its peers. Such bankingon- the-average rules are transparent and could also be combined with the current regulatory framework. In addition, we argue that...

We propose a simple, parsimonious, and easily implementable method for stress-testing banks using a top-down approach that evaluates the impact of shocks to macroeconomic variables on banks' capitalization. Our method relies on a variable selection method to identify the macroeconomic drivers of...

We propose a simple, parsimonious, and easily implementable method for stress-testing banks using a top-down approach that evaluates the impact of shocks to macroeconomic variables on banks' capitalization. Our method relies on a variable selection method to identify the macroeconomic drivers of...

We develop a dynamic structural model of bank behaviour that provides a microeconomic foundation for bank capital and liquidity structures and analyses the effects of changes in regulatory capital and liquidity requirements as well as their interaction. Our findings suggest that adjustments in...

This paper proposes a quantitative multi-sector DSGE model with bank failure and firm default to study the interactions between bank regulation and climate policy. Households value the liquidity of deposits, which are protected by deposit insurance. Banks collect deposits and issue equity to...

This study investigates the amount of liquidity that is necessary to settle a given network of financial obligations. In our analysis, we assume sequential settlement, which is standard in real-world interbank settlement systems, instead of simultaneous settlement, which is typically assumed in...