Why High Leverage is Optimal for Banks
---- Acknowledgements -----
We thank Anat Admati, Michael Brennan, John Cochrane, Peter DeMarzo, Doug Diamond, Nicola Gennaioli, Charles Goodhart, Gary Gorton, Paul Pfleiderer, Jim Poterba, Andrei Shleifer, Richard Smith, Jeremy Stein, and Anjan Thakor for useful comments. Brian Baugh and Yeejin Jang provided excellent research assistance. René Stulz serves on the board of a bank that is affected by capital requirements and consults and provides expert testimony for financial institutions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.