This paper studies optimal bank capital requirements in a model of endogenous bank funding conditions. I find that requirements should be higher during good times such that a macroprudential "buffer" is provided. However, whether banks can use buffers to maintain lending during a financial...

Countercyclical bank capital requirements have emerged as a popular regulatory tool to help smooth financial cycles. The idea is to reduce capital requirements when exogenous shocks cause aggregate bank capital to decrease so that regulation does not needlessly constrain banks' supply of credit....

We study constrained-efficient bank capital regulation in a model with market-imposed equity requirements. Banks hold equity buffers to insure against sudden loss of access to funding. However, in the model, banks choose to only partially self-insure because equity is privately costly. As a...

This paper studies the efficiency of financial intermediation through securitization in a model with heterogeneous investment projects and asymmetric information about the quality of securitized assets. I show that when retaining part of the risk, the issuer of securitized assets may credibly...

This paper analyzes the design of simple macroprudential rules for bank and non-bank credit markets in a medium-scale dynamic stochastic general equilibrium model. In the model, mutual funds support corporate bond issuance by firms with access to capital markets; a banking sector supplies loans...

Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or...

This paper studies monetary policy in an economy where banks make risky loans to firms and provide liquidity services in the form of deposits to households. For given bank equity, market discipline implies that banks can take more deposits when assets are safer or more profitable. Banks respond...

This paper offers a simple theory of inefficiently lax financial regulation arising as an outcome of a democratic political process. Lax financial regulation encourages some banks to issue risky residential mortgages. In the event of an adverse aggregate housing shock, these banks fail. When...

We construct a small-open-economy, New Keynesian dynamic stochastic generalequilibrium model with real-financial linkages to analyze the effects of financial shocks and macroprudential policies on the Canadian economy. Our model has four key features. First, it allows for non-trivial...