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| LEADER |
01546nam a2200205Ia 4500 |
| 001 |
10.1016-j.jfineco.2018.05.008 |
| 008 |
220706s2018 CNT 000 0 und d |
| 020 |
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|a 0304405X (ISSN)
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| 245 |
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|a Financing as a supply chain: The capital structure of banks and borrowers
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| 260 |
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|b Elsevier B.V.
|c 2018
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| 856 |
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|z View Fulltext in Publisher
|u https://doi.org/10.1016/j.jfineco.2018.05.008
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|a We develop a model of the joint capital structure decisions of banks and their borrowers. Bank leverage of 85% or higher emerges because bank seniority both dramatically reduces bank asset volatility and incentivizes risk-taking by producing a skewed return distribution. Nonfinancial firms choose low leverage to protect their banks, presenting a partial resolution to the low-leverage puzzle. Our setup naturally extends to include government actions as we model bank assets using a modified Basel framework. Deposit insurance and bailout expectations lead banks and borrowers to take on more risk. Capital regulation lowers bank leverage but can increase bank risk due to a compensating increase in borrower leverage. Despite this, doubling current capital requirements reduces bank default risk by up to 90%, with only a small increase in loan interest rates. © 2018 Elsevier B.V.
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|a Banking
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|a Capital regulation
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| 650 |
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|a Capital structure
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| 650 |
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|a Diversification
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| 650 |
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|a Seniority
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| 700 |
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|a Gornall, W.
|e author
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| 700 |
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|a Strebulaev, I.A.
|e author
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| 773 |
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|t Journal of Financial Economics
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