Publication:
Bank regulation under fire sale externalities

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dc.contributor.authorKara, G. I.
dc.contributor.authorÖzsoy, Satı Mehmet
dc.contributor.departmentEconomics
dc.contributor.ozuauthorÖZSOY, Satı Mehmet
dc.date.accessioned2020-11-30T13:15:35Z
dc.date.available2020-11-30T13:15:35Z
dc.date.issued2020-06
dc.description.abstractWe examine the optimal design of and interaction between capital and liquidity regulations. Banks, not internalizing fire sale externalities, overinvest in risky assets and underinvest in liquid assets in the competitive equilibrium. Capital requirements can alleviate the inefficiency, but banks respond by decreasing their liquidity ratios. When capital requirements are the only available tool, the regulator tightens them to offset banks' lower liquidity ratios, leading to fewer risky assets and less liquidity compared with the second best. Macroprudential liquidity requirements that complement capital regulations implement the second best, improve financial stability, and allow for more investment in risky assets.
dc.identifier.doi10.1093/rfs/hhz117
dc.identifier.endpage2584
dc.identifier.issn0893-9454
dc.identifier.issue6
dc.identifier.scopus2-s2.0-85100846312
dc.identifier.startpage2554
dc.identifier.urihttp://hdl.handle.net/10679/7158
dc.identifier.urihttps://doi.org/10.1093/rfs/hhz117
dc.identifier.volume33
dc.identifier.wos000536040500005
dc.language.isoeng
dc.peerreviewedyes
dc.publicationstatusPublished
dc.publisherOxford University Press
dc.relation.ispartofThe Review of Financial Studies
dc.rightsrestrictedAccess
dc.titleBank regulation under fire sale externalities
dc.typereview
dspace.entity.typePublication
relation.isOrgUnitOfPublication2afe80e3-623c-4807-a57e-2ce75845ccea
relation.isOrgUnitOfPublication.latestForDiscovery2afe80e3-623c-4807-a57e-2ce75845ccea

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