Three Essays on Banking Sector Stability: Theoretical Models and Empirical Application

This thesis consists of three interdependent and original works on the relation between a single bank risk-taking behavior and the overall banking sector liquidity in response to monetary policy and merger waves. A theoretical model explains the impact of minimum capital requirement on bank risk taking behavior. Minimum capital, through the effect on the interbank interest rate, has the perverse effect to increase bank risk taking behavior. Moreover, minimum capital must increase as the risk-free interest rate rises. Then, the magnitude of the interest rates to affect banks behavior is empirically assessed. Finally, a chapter builds up and tests empirically a model which highlights the relation between consolidation of banks suppliers of differentiated products and bank risks.