Equity capital is the shock absorber for our financial system and the current financial crisis, like a bumpy road for an auto designer, provides a unique opportunity for financial regulators to evaluate the predictions of theory and improve the design of the regulatory system. The purpose of this paper is to apply a simple model of firm capital structure to the current situation and summarize the insights it provides regarding the regulation of large financial institutions in a post-crisis world. The paper begins with a brief summary of the model and uses the results of that model to place the evolution of the current crisis into perspective. The paper concludes with forward-looking observations and suggestions for future regulation.
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Publisher Info
Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
2009-29.
Length: 20 pages Date of creation: Sep 2009 Date of revision: Handle: RePEc:uct:uconnp:2009-29
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