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اقتصاد::
ریسک ورشکستگی
Liquidity buffers Capital structure Insolvency risk Regulation
We develop a dynamic model of banking to assess the effects of liquidity and leverage requirements on banks' financing decisions and insolvency risk.
While many insightful discussions of liquidity and leverage requirements are available in the literature, finan- cial theory has made little headway in developing mod- els that can provide quantitative guidance for bank capi- tal structure decisions and for the effects of regulatory re- quirements on those decisions and the resulting insolvency risk.
Second, we want to use this model to characterize the endogenous response of banks to the imposition of liquidity and leverage re- quirements and to measure the effects of such regula- tory requirements on banks' policy choices and insolvency risk.
After solving for the policy choices of unregulated banks, we examine the effects of prudential regulation on these policy choices and insolvency risk.
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