Countercyclical Capital Regulation and Bank Ownership Structure

Tommaso Trani

No 14-2012, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper develops a macroeconomic framework where the representative bank is owned by inside and outside owners and copes with capital requirements that vary countercyclically. The issuance of outside equity is characterized getting insights from the literature on corporate governance, especially that on corporate governance and investor protection. The insider receives utility benefits from the diversion of dividends, but the costs of diversion increase with the size of bank equity owned by outsiders. The goal is to see to what extent the willingness of insiders to share the bank with outsiders is affected by capital regulation. I find a negative link, which holds only if capital restrictions vary countercyclically. Thinking of a positive shock, the justification for such a negative link is that the shock leads not only to tighter regulation, but also to higher expected dividends and, relatedly, to higher agency costs affecting the distribution of earnings.

Keywords: macroprudential policy; bank regulation; insider-outsider; bank shareholding (search for similar items in EconPapers)
JEL-codes: E60 G28 G32 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012-09-21
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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