Advanced Questions of Equity Regulation in Modern Banking Systems

Abstract

Banking regulation is a topic that gained a lot of popularity during the US subprime crisis and the subsequent European sovereign debt crisis with questions like the following being omnipresent in the media:

Why did so many institutions invest so much into the toxic financial products that fueled the subprime crisis? Why are banks so fragile and do not save more for bad times? Why is an insolvent bank in the US affecting European and Asian banks so much?

In my doctoral thesis, I try to expand our knowledge of how equity requirements affect modern banking systems. For this purpose, the questions stated above are not only a summary of media headlines during the subprime and sovereign debt crisis, but the structure that connects the three chapters of my doctoral thesis:

How do financial innovations form systemic risk and how can equity requirements prevent this? What are possible factors that influence the decision between paying dividends and increasing equity using retained earnings? How can equity and liquidity requirements mitigate financial contagion?