TakingFirmsandMarketsSeriouslyAStudyonBankBehavior.pptVIP

Taking Firms and Markets Seriously: A Study on Bank Behavior, Market Discipline, and Regulatory Policy ;Objectives; ;Bank Capital ;Theoretical Model;If bank creditors (depositors) care about individual bank risk (bankruptcy) then If bank creditors care about bank systemic risk then Depositors may care about both idiosyncratic and systemic bank risk. Which one do they care about more? The answer depends on the sign of This sign determines whether the banking system is under-capitalized or not.;CASE A Free riding An unregulated banking sector is undercapitalized. CASE B No free ridin