The Effects of Capital Requirements on Good and Bad Risk Taking

Nathaniel Pancost and Roberto Robatto
Additional contact information
Nathaniel Pancost: University of Texas at Austin McCombs Sc

No 638, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We study optimal capital requirement regulation in a dynamic quantitative model in which deposits facilitate real economic activity and thus the value of deposits is microfounded. We identify a novel general equilibrium effect that drives a wedge between the private value of deposits (i.e., the value to price-taking agents, measured by the deposit premium) and the social value of deposits (i.e., the value that matters for regulation). The wedge reduces the social value of deposits, and as a result, the optimal capital requirement is substantially higher than in comparable models in the literature. Nonetheless, even when the marginal social value of deposits is very low, setting capital requirements too high is suboptimal.

Date: 2019
New Economics Papers: this item is included in nep-ban, nep-cba and nep-dge
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_638.pdf (application/pdf)

Related works:
Journal Article: The Effects of Capital Requirements on Good and Bad Risk-Taking (2023)
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:red:sed019:638

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().