Strategic Bank Liability Structure Under Capital Requirements

This paper incorporates suggestions made by Mark Flannery, Nengjiu Ju, Anat Admati, Anjan Thakor, Tobias Adrian, Harry DeAngelo, Rene Stulz, Charles Kahn, Gur Huberman, Mark Flood, Lorenzo Garlappi, Charlie Calomiris, Erwan Morellec, Rafael Repullo, Javier Suarez, Debbie Lucas, Francisco Covas, Patrick Bolton, and the anonymous referees. The paper has benefited from comments from seminar participants in the Federal Reserve Bank of New York, University of North Carolina at Charlotte, Georgia State University, University of Washington at Seattle, the Reserve Bank of India, Indiana University at Bloomington, University of Illinois at Chicago, the Federal Deposit Insurance Corporation, the European Central Bank, Purdue University, the Office of Financial Research in the U.S. Department of Treasury, the Bank of International Settlements, CEMFI, University of Lausanne, and Dalian University of Technology. The paper has also benefited from feedback from participants at Moody’s Credit Risk Research Conference, the Atlanta Conference on the Future of Large Financial Institutions, the Annual Meeting of the American Finance Association, and the Conference on Optimal Bank Capital Regulation organized by the Clearing House Association and Columbia School of International and Public Affairs. The authors thank Patrik Bauer for research assistance. This paper was previously circulated under the title “Bank Liability Structure.”