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Corporate debt choice and bank capital regulation

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  • Xiang, Haotian

Abstract

This paper proposes a macro-banking model with corporate debt choice and investigates the impacts of bank capital regulation. Compared to non-banks, banks provide restructurable debt that resolves firm liquidations. Capital regulation corrects deposit insurance distortions but reduces bank debt supply. The model calibrated to the U.S. economy suggests that the non-bank market booms in the short run but shrinks in the long run when capital requirements are tightened. While banks get stabilized, firms encounter liquidations more frequently despite their deleveraging. Welfare improves under tighter and counter-cyclical capital requirements.

Suggested Citation

  • Xiang, Haotian, 2022. "Corporate debt choice and bank capital regulation," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:dyncon:v:144:y:2022:i:c:s016518892200210x
    DOI: 10.1016/j.jedc.2022.104506
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    References listed on IDEAS

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    Cited by:

    1. Jermann, Urban & Xiang, Haotian, 2023. "Dynamic banking with non-maturing deposits," Journal of Economic Theory, Elsevier, vol. 209(C).

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    More about this item

    Keywords

    Capital requirements; Non-banks; Debt complementarity;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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