banking system to aggregate liquidity shocks? And what are the implications, if any, for banking regulation? To answer these … contract, and default in equilibrium only when facing systemic liquidity risk. In this case, the allocation at default is … questions, I study a Diamond-Dybvig environment, where banks hedge against aggregate liquidity risk in the interbank market or …

default coexist, and bank default is a self-fulfilling prophecy. Capital and liquidity regulation can prevent bank default and …We study the interplay of capital and liquidity regulation in a general equilibrium setting by focusing on future … liquidity regulation. Adding liquidity regulation to optimal capital regulation is redundant. …