Uncertainty about the riskiness of new financial products was an important factor behind the U.S. credit crisis. We …

examines one particular channel at work: the supply of credit. It presents a model in which a bank, even if managed by risk … credit supply is achieved by looking at the differential response of banks according to their level of capitalization …. Consistent with the theoretical predictions, increases in uncertainty reduce the supply of credit, more so for banks with lower …