{"id":1140,"date":"2021-01-25T12:12:55","date_gmt":"2021-01-25T10:12:55","guid":{"rendered":"https:\/\/www.christophbertsch.com\/?p=1140"},"modified":"2021-02-01T22:41:46","modified_gmt":"2021-02-01T20:41:46","slug":"new-bis-working-paper-no-923-optimal-bank-leverage-and-recapitalization-in-crowded-markets","status":"publish","type":"post","link":"https:\/\/www.christophbertsch.com\/?p=1140","title":{"rendered":"New BIS Working Paper No. 923 &#8220;Optimal Bank Leverage and Recapitalization in Crowded Markets&#8221;"},"content":{"rendered":"\n<p><a href=\"https:\/\/www.bis.org\/publ\/work923.htm\"><strong>&#8220;Optimal Bank Leverage and Recapitalization&nbsp;in Crowded Markets&#8221;<\/strong><\/a> with <a href=\"http:\/\/sites.google.com\/site\/mikemariathasan\/\" target=\"_blank\" rel=\"noreferrer noopener\">Mike Mariathasan<\/a>&nbsp;(BIS Working Paper No. 923, January 2021; Builds on older paper &#8220;Fire Sale Bank Recapitalizations&#8221;: 09\/2015)<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Abstract:&nbsp;We study optimal bank leverage and recapitalization in general equilibrium when the supply of specialized investment capital is imperfectly elastic. Assuming incomplete insurance against capital shortfalls and segmented financial markets, ex-ante leverage is inefficiently high, leading to excessive insolvencies during systemic capital shortfall events. Recapitalizations by equity issuance are individually and socially optimal. Additional frictions can turn asset sales individually but not necessarily socially optimal. Our results hold for different bankruptcy protocols and we offer testable predictions for banks\u2019 capital structure management. Our model provides a rationale for macroprudential capital regulation that does not require moral hazard or informational asymmetries.&nbsp;(D5, D6, G21, G28)<\/li><\/ul>\n\n\n\n<figure class=\"wp-block-image alignnone wp-image-1123\"><img loading=\"lazy\" decoding=\"async\" width=\"300\" height=\"182\" src=\"https:\/\/www.christophbertsch.com\/wp-content\/uploads\/2020\/12\/Fig4b-300x182.jpg\" alt=\"\" class=\"wp-image-1123\" srcset=\"https:\/\/www.christophbertsch.com\/wp-content\/uploads\/2020\/12\/Fig4b-300x182.jpg 300w, https:\/\/www.christophbertsch.com\/wp-content\/uploads\/2020\/12\/Fig4b-768x467.jpg 768w, https:\/\/www.christophbertsch.com\/wp-content\/uploads\/2020\/12\/Fig4b-493x300.jpg 493w, https:\/\/www.christophbertsch.com\/wp-content\/uploads\/2020\/12\/Fig4b.jpg 937w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><figcaption>This figure depicts for a given level of leverage (horizontal axis) the market-clearing price for specialized investment capital and the threshold level of bank portfolio risk below which liability side recapitalizations (red) and asset side recapitalizations (blue) are feasible.<\/figcaption><\/figure>\n\n\n\n<ul class=\"wp-block-list\"><li>Keywords: bank capital, recapitalization, macroprudential regulation, incomplete markets, financial market segmentation, constrained inefficiency.<\/li><li>Also available as <a href=\"https:\/\/www.riksbank.se\/globalassets\/media\/rapporter\/working-papers\/2019\/no.-312-optimal-bank-leverage-and-recapitalization-in-crowded-markets-updated-december-2020.pdf\"><em>Riksbank Working Paper No. 312<\/em><\/a><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;Optimal Bank Leverage and Recapitalization&nbsp;in Crowded Markets&#8221; with Mike Mariathasan&nbsp;(BIS Working Paper No. 923, January 2021; Builds on older paper &#8220;Fire Sale Bank Recapitalizations&#8221;: 09\/2015) Abstract:&nbsp;We study optimal bank leverage and recapitalization in general equilibrium when the supply of specialized &hellip; <a href=\"https:\/\/www.christophbertsch.com\/?p=1140\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[82,83,10,80,81],"class_list":["post-1140","post","type-post","status-publish","format-standard","hentry","category-academic-research","tag-bank-capital","tag-bank-recapitalization","tag-banking","tag-financial-regulation","tag-systemic-risk"],"_links":{"self":[{"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=\/wp\/v2\/posts\/1140","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1140"}],"version-history":[{"count":2,"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=\/wp\/v2\/posts\/1140\/revisions"}],"predecessor-version":[{"id":1142,"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=\/wp\/v2\/posts\/1140\/revisions\/1142"}],"wp:attachment":[{"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1140"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1140"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.christophbertsch.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1140"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}