Banks provide risky loans to firms which have superior information regarding the quality of their projects. Due to … asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem … of low quality, i.e. high risk, loans and therefore reduces the risk of the bank loan portfolio. However, CVaR regulation …

balance of three forces: interest rate pass-through, risk shifting, and leverage. When banks can adjust their capital …, the balance depends on the degree of bank capitalization: when facing a policy rate cut, well capitalized banks decrease … monitoring, while highly levered banks increase it. Further, the balance of these effects depends on the structure and …