This paper discusses liquidity regulation when short-term funding enables credit growth but generates negative systemic risk externalities. It focuses on the relativemerit of price versus quantity rules, showing how they target different incentives for risk creation.When banks differ in credit...

In 2001, government guarantees for savings banks in Germany were removed following a law suit. We use this natural experiment to examine the effect of government guarantees on bank risk taking, using a large data set of matched bank/borrower information. The results suggest that banks whose...

Liquidity creation is one of banks’ raisons d’être. But what happens to liquidity creation and risk taking when a bank is identified as distressed by regulatory bodies and subjected to regulatory interventions and/or receives capital injections? What are the long-run effects of such...

The industrial organization approach to banking is extended to analyze the effects of interbank market activity and regulatory liquidity requirements on bank behavior. A multi-stage decision situation allows for considering the interaction between credit risk and liquidity risk of banks. This...

Debt overhang and moral hazard related to risk-shifting opportunities predict that low capitalized banks have a lower likelihood to issue equity. In contrast to this view, for an international sample of bank Seasoned Equity Offerings (SEOs), we show that the likelihood of issuing an SEO is...

We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of a...

We developed a dynamic stochastic general equilibrium (DSGE) model for a small, open economy with a banking sector and endogenous default to assess two macroprudential tools: countercyclical capital buffers (CCB) and dynamic provisions (DP). The model is estimated with data for Uruguay, where...

We estimate the volume of liquidity creation by U.S. bank holding companies between 1997 and 2015, and examine the impact of changes in macrofinancial policies on the dynamics of this process. We focus on three major policy developments occurring in the aftermath of the 2007-2009 financial...

This study investigates spillover effects of banks' liquidity risk control on the real economy by using the introduction of the Basel III liquidity regulation as shocks to banks. Since the Basel Committee's endorsement of this regulation in 2010, banks exposed to high liquidity risk have...

We formulate a continuous-time model of a deposit taking bank, operating subject to capital adequacy regulation, and where the bank's loans are exposed to default risk. The bank maximises their market value of equity by appropriately controlling loan and equity issuance, dividend payments, and...