The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor's point of view since...

Conventional wisdom in banking argues that diversification tends to reduce bank risk and improve performance, but the recent financial crisis suggests that aggressive diversification strategies may have resulted in increased risk taking and poor performance. This paper addresses this important...

The papers in this volume were commissioned with the aim of exploring the significant structural changes in the financial system over the past decade or so and the implications for policy-makers charged with the responsibility of maintaining financial system stability