We find evidence that banks target return on equity (RoE) and make active use of leverage to affect the speed of adjustment towards RoE targets. That holds for both the pre- and post-2007 periods and especially for banks that tend to operate with above median leverage among their peer group. As...

This article considers prudential liquidity regulation as quid pro quo for emergency liquidity assistance by the central bank. In the presence of bank funding constraints, information-induced bank runs and an objective by the central bank to maintain a balanced budget under its lender of last...

Using an intertemporal model of asset pricing under asymmetric information, we demonstrate how public ratings about the quality of a risky asset could enhance information efficiency, albeit at a cost of higher asset price volatility. The analysis also draws implications for the use of ratings...