Three essays on banking

This dissertation consists of three essays on banking and concentrates on two topics. The first two essays deal with strategic behavior of borrowers. The third essay explores the relation between bank capital and risk-taking. The first essay, Collective Strategic Defaults: Bailouts and Repayment Incentives, studies a global game model of debtor runs on a bank and the role of a lender of last resort in mitigating strategic debtor behavior and bank moral hazard. The second essay, Strategic Loan Defaults and Coordination: An Experimental Analysis investigates the impact of uncertainty about bank and borrower fundamentals on loan repayment. These two sources of uncertainty are natural proxies for the regulatory rules for transparency and disclosure, and for the state of the economy. The third essay, Capital Regulation and Tail Risks, analyses bank’s risk-taking behavior in the presence of tail risk projects, and shows that it can take unintuitive non-linear forms, with incentives to take excessive risk increasing in capital.