We present a simple model of an economy with heterogeneous banks that may be funded with uninsured deposits and equity … supply of bank capital and show that optimal capital requirements should be lowered. Failure to do so would keep banks safer …

. Using a model with imperfect competition and moral hazard, we find that small banks (and hence small borrowers) may profit … from the introduction of an internal ratings based (IRB) approach if this approach is applied uniformly across banks …. However, the banks’ right to choose between the standardized and the IRB approaches unambiguously hurts small banks, and …

-based deposit insurance premiums, put explicit limits on the application of a “too big to fail” principle for banks and required … that examiners implement “prompt corrective action” (PCA) standards for banks. Essentially these steps were to improve the … functioning of the FDIC, especially removing discretion of the examiners in the process of addressing the risk of failure of banks …