When a bank is burdened with Non Performing Loans, an underinvestment problem may arise. Banking Authorities often take the initiative to segregate these Non Performing Loans into a Bad Bank (BB), so that the remaining part of the bank, the Good Bank, finds it profitable to make new loans. These...

We build a stylized dynamic general equilibrium model with financial frictions to analyze costs and benefits of capital requirements in the short-term and long-term. We show that since increasing capital requirements limits the aggregate loan supply, the equilibrium loan rate spread increases,...

Activist NGOs increasingly oppose industrial projects that were approved by public regulators. We develop a model that explains this phenomenon. We consider a potentially-harmful industrial project that is subject to regulatory approval. The regulator can be influenced by the industry, and may...

We study an optimal dividend problem under a bankruptcy constraint. Firms face a trade-off between potential bankruptcy and extraction of profits. In contrast to previous works, general cash flow drifts, including Ornstein–Uhlenbeck and CIR processes, are considered. We provide rigorous proofs...