We study the relationship between banks' size and risk-taking in the context of supranational banking supervision. Consistently with theoretical work on banking unions and in contrast to analyses emphasising incentives under- pinned by the too-big-to-fail effect, we find an inverse relationship...

Both equity and regulation play key roles in determining the ability of credit creation of banks. The equity endogenously varies while the regulations are exogenously imposed. I propose a banking model to investigate how the changes in bank equity due to interest receipt and expenditure affect...

This paper studies the capital regulation of banks that choose whether to become traditional, deposit taking banks or shadow banks that provide credit intermediation through securitization. If capital regulation only covers traditional banks, it will lead to the emergence of excessively risky...

We study how optimal bank capital and bond risk are influenced by deposit insurance, implicit guarantees, depositor preference, asset encumbrance, and bail-in resolution frameworks. We find that these features of bank financing change the optimal amount of bank capital. The net effect on bond...

The lack of portfolio granularity in terms of exposure has been shown to have important implications for the amount of a financial institution's economic capital. Based on a numerical simulation model, we provide concrete examples of how granularity affects capital levels. We achieve this by...

Following the financial crisis, the share of non-performing loans has significantly increased, while the regulatory guidelines on the Internal-Ratings Based (IRB) approach for capital adequacy calculation related to defaulted exposures remains too general. As a result, the high-risk nature of...

An important question in banking is how strict supervision affects bank lending and in turn local business activity. Forcing banks to recognize losses could choke off lending and amplify local economic woes, especially after financial crises. But stricter supervision could also lead to changes...

An important question in banking is how strict supervision affects bank lending and in turn local business activity. Supervisors forcing banks to recognize losses could choke off lending and amplify local economic woes. But stricter supervision could also change how banks assess and manage...

This paper studies the role of non-performing loans in the regulatory measures of the Chinese commercial banking system. A threshold panel regression model has been applied to the data of 87 commercial banks in China from 2006 to 2012. The empirical results suggest that a higher non-performing...

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...