The micro and macroeconomics of banking

The U.S. Great Recession has pointed to the importance of the banking sector in originating, amplifying, and propagating financial shocks to the real side of the economy. In response to the downturn, there has been a great deal of new regulation to mitigate the effects of future financial crises. Quantitative structural models of the banking sector that avoid the Lucas critique are critical to conduct counterfactual policy to evaluate the effects of new regulation. One important factor in the effects of policy is banking industry market structure and competition among banks of different sizes. Regulation itself may effect market structure and the distribution of bank size. Understanding regulatory arbitrage and how competitiveness of the banking sector varies with changes in regulation is critical to understand the health of the financial system.