regulatory requirements. Our analytic characterization of the bank policy choices shows that imposing solely liquidity … requirements leads to lower bank losses in default at the cost of an increased likelihood of default. Combining liquidity … requirements with leverage requirements reduces drastically both the likelihood of default and the magnitude of bank losses in …

In this study, we test the predictive power of several alternative measures of bank capital adequacy in identifying U ….S. bank failures during the recent crisis period. We find that an unconventional ratio — the non-performing asset coverage … ratios in at least five aspects: (i) it aligns capital and credit risks — the two primary risks of bank failures — in one …

This paper shows that US banks' increased geographic diversification is an important explanation for the decline of … liquidity. These results suggest that diversification increases liquidity risk-taking capacity in normal times, and that …

We present a model where bank assets are a portfolio of risky debt claims and analyze stockholders' risk …-taking behavior while considering the strategic interaction between debtors and creditors. We find that: (1) as the leverage of a bank … demonstrates that an increase in comovement of a loan portfolio increases the bank's cost of default directly, we find that the …

This paper analyzes the effects of bank manager’s incentive pay on financial stability. Two banks are owned by risk …-neutral principals and run by risk-averse managers that determine the level of leverage and how much to diversify into the other bank …’s asset. Diversification and leverage in turn determine both idiosyncratic and systemic insolvency risk. We first characterize …

researchers and regulators. Since poor bank governance is seen as a major cause of the recent crisis, a deeper understanding is … needed how banks are governed and how bank governance is associated with performance and risk taking. This report deals with … non-executive bank employees provided by an international consulting company. The results indicate that both aspects of …