Bank capital regulation and secondary markets for bank assets

Michal Kowalik

No RWP 11-02, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: The paper derives optimal capital requirements, when the bank?s quality is private information. The supervisor can inspect the bank and punish the undercapitalized one with recapitalization and downsizing. The cost of bank?s capital and its ability to sell its assets are crucial for the bank?s incentive to reveal its quality truthfully. The paper provides following policy implications. First, sensitivity of capital requirements to the bank?s quality should be low in good times and high in bad times. Second, a leverage ratio should be accompanied by a requirement that the bank selling its assets retains part of them. Third, using results from supervisory inspection on the secondary market for the bank?s assets increases the bank?s incentive to misreport its quality. Fourth, implementation of the sensitive capital requirements cannot rely solely on information revealed on the market for the bank?s assets.

Keywords: Banks and banking; Bank capital; Secondary markets (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.kansascityfed.org/documents/5301/pdf-rwp11-02.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:rwp11-02

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Research Working Paper from Federal Reserve Bank of Kansas City Contact information at EDIRC.
Bibliographic data for series maintained by Zach Kastens ().