We estimate the shadow cost of capital requirements using data on a costly loophole that allowed banks to relax these constraints. This loophole—liquidity guarantees to assetbacked commercial paper conduits—was exploited by the largest banks before the crisis of 2008. We show theoretically that a bank's use of the loophole reveals its private compliance cost, which takes into account both the costs of issuing equity and the effectiveness of capital regulation. We find that increasing capital requirements would impose a modest cost—220 million a year for all participating banks combined per one-percentage-point increase, and 14 million on average.

We estimate the shadow cost of capital requirements using data on a costly loophole that allowed banks to relax these constraints. This loophole—liquidity guarantees to asset-backed commercial paper conduits—was exploited by the largest banks before the crisis of 2008. We show theoretically that a bank's use of the loophole reveals its private compliance cost, which takes into account both the costs of issuing equity and the effectiveness of capital regulation. We find that increasing capital requirements would impose a modest cost—$220 million a year for all participating banks combined per one-percentage-point increase, and $14 million on average.

We study information acquisition and dynamic withdrawal decisions when a spreading rumor exposes a solvent bank to a run. Uncertainty about the bank's liquidity and potential failure motivates depositors who hear the rumor to acquire additional noisy signals. Depositors with less informative signals may wait before gradually running on the bank, leading to an endogenous aggregate withdrawal speed and bank survival time. Private information acquisition about liquidity can subject solvent‐but‐illiquid banks to runs, and shorten the survival time of failing banks. Public provision of solvency information can mitigate runs by indirectly crowding‐out individual depositors' effort to acquire liquidity information.