We develop a general equilibrium model of banks' capital structure, featuring heterogeneous portfolio risk and an … imperfectly elastic supply of bank equity stemming from financial market segmentation. In our model, equity is costly and serves … as a buffer against insolvency. Banks are ex-ante identical, but may need to recapitalize by selling equity claims after …

risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity … remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost … benefit. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking …

We take issue with claims that the funding mix of banks, which makes them fragile and crisis-prone, is efficient … because it reflects special liquidity benefits of bank debt. Even aside from neglecting the systemic damage to the economy … that banks' distress and default cause, such claims are invalid because banks have multiple small creditors and are unable …

We take issue with claims that the funding mix of banks, which makes them fragile and crisisprone, is efficient because … it reflects special liquidity benefits of bank debt. Even aside from neglecting the systemic damage to the economy that … banks' distress and default cause, such claims are invalid because banks have multiple small creditors and are unable to …

Bank regulators interfere with the efficient allocation of resources for the sake of financial stability. Based on this … across heterogeneous banks. In the model, banks‘ productivity determines their optimal strategy in oligopolistic markets …. Higher productivity gives banks higher profit margins that lower their default risk. Hence, capital requirements indirectly …

We examine the optimal size and composition of banks' total loss absorbing capacity (TLAC). Optimal size is driven by …

To protect retail investors from the bail-in rule, we propose that banks should issue subordinated "contractual bail …, a bank is able to reduce the cost of debt by splitting it into a junior and a senior tranche, sold to institutional and … estimates of the amounts of contractual bail-in instruments that European banks should issue in order to reach the 8% target …

-shifting phenomena on banks' assets, notably when price-to-book values are below one, may increase the overall risk of the bank, and … must be carefully analysed before endorsing the general statement that “bank equity is not expensive”. In fact, specific … explicit/implicit government guarantees, and c) the risk-shifting behaviour of banks' equity holders. To highlight these issues …

and become toxic. We study the effects of the LRR on lending strategies and its implications for banks' stability. We show … that the LRR might induce banks with low-risk lending strategies to diversify their portfolios into high-risk loans until … the LRR is no longer the binding capital constraint on them. If the LRR is lower than the average bank's IRB requirement …

not deductible. Theoretically, this unequal treatment gives a bank - as any other firm - an incentive to take on more debt … significantly increases bank capital ratios, driven by an increase in common equity. Additionally, the results illustrate that both … high and low capitalized banks react to the change in tax legislation, but that the latter profit more in terms of overall …