The Impact of Capital-Based Regulation on Bank Risk-Taking: A Dynamic Model

Paul S. Calem and Rafael Rob
Authors registered in the RePEc Author Service: Rafael Robb

No 1996-12, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In this paper, we model the dynamic portfolio choice problem facing banks, calibrate the model using empirical data from the banking industry for 1984-1993, and assess quantitatively the impact of recent regulatory developments related to bank capital. The model suggests that two aspects of the new regulatory environment may have unintended effects: higher capital requirements may lead to increased portfolio risk, and capital-based premia do not deter risk-taking by well-capitalized banks. On the other hand, risk-based capital standards may have favorable effects provided the requirements are stringent enough.Full paper (249 KB Postscript)

Pages: 47 pages
Date: 2019-12-04
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The impact of capital-based regulation on bank risk-taking: a dynamic model (1996)
Working Paper: The Impact of Capital-Based Regulation on Bank Risk-Taking: A Dynamic Model'
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:1996-12

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