We estimate a dynamic structural banking model to examine the interaction between risk-weighted capital adequacy and unweighted leverage requirements, their differential impact on bank lending, and equity buffer accumulation in excess of regulatory minima. Tighter risk-weighted capital requirements reduce loan supplies and lead to an endogenous fall in bank profitability, reducing bank incentives to accumulate equity buffers and, therefore, increasing the incidence of bank failure. Alternatively, tighter leverage requirements increase lending, preserve bank charter value, and incentives to accumulate equity buffers leading to lower bank failure rates.

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Using a stress test methodology for bank liquidity risk we estimate the aggregate liquidity shortfall in the U.S. commercial banking system at the height of 2007-09 crisis, identifying key sources of funding vulnerabilities and the dominant composition of liquid asset holdings against liquidity shocks. The largest liquidity shocks to the system are estimated in the first half of the crisis, in line with Acharya and Mora (2015). Large banks experience the largest liquidity shortfall in 2008:Q1

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