Essays in banking and corporate finance.

Summary This thesis is composed of three essays. The first essay deals with the problem of the risk of extreme losses in the banking sector in the context of the agency problem between the shareholders and the top managers of banks. In order to induce banks not to take the risk of extreme losses, it is proposed to apply capital regulation in the form of a mandatory recapitalization policy, the parameters of which are chosen to induce shareholders to remunerate their managers in such a way as to steer them away from extreme loss strategies.The 2nd essay develops the design of bank supervision that aims to eliminate the moral hazard problem within a bank, while ensuring a minimum cost of supervision. Banks, whose financial condition begins to deteriorate, should be subject to random audits. Banks whose asset values have deteriorated significantly should be placed under conservatorship for financial recovery. External auditors can be involved in the supervisory process, but should not completely replace regulators. The third essay studies how the borrowing capacity of the non-financial firm affects its investment policy in the presence of debt issuance costs. It is shown that firms, with medium borrowing capacity, have an incentive to make a larger investment compared to firms with relatively low/high borrowing capacity. This is entirely due to the effect of fixed debt issuance costs, which emerges in the dynamic investment environment.