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We study optimal capital requirement regulation in a dynamic quantitative model in which nonfinancial firms, as well as households, hold deposits. Firms hold deposits for precautionary reasons and to facilitate the acquisition of production inputs. Our theoretical analysis identifies a novel...
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"What is the effect of fiancial crises and their resolution on banks' choice of liquid asset holdings? When risky assets have limited pledgeability and banks have relative expertise in employing risky assets, the market for these assets clears only at fire-sale prices following a large number of...
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The Basel capital framework plays an important role in risk management by linking a bank's minimum capital requirements … to the riskiness of its assets. Nevertheless, the risk estimates underlying these calculations may be imperfect, and it … appears that a cyclical bias in measures of risk-adjusted capital contributed to procyclical increases in global leverage …
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