The effect of stricter capital regulation on banks’ risk‐taking: Theory and evidence

Frederik Lundtofte and Caren Yinxia Nielsen

European Financial Management, 2019, vol. 25, issue 5, 1229-1248

Abstract: A simple portfolio choice model shows that, when a bank's capital is constrained by regulation, regulatory cost (risk weightings) alters the risk and value calculations for the bank's assets. In particular, we find that banks may respond to stricter regulation by increasing the share of high‐risk assets. Our empirical results show that US banks responded to the implementation of the stricter Basel II regulations by increasing the share of high‐risk assets in the risky part of their portfolios.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/eufm.12205

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:bla:eufman:v:25:y:2019:i:5:p:1229-1248

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1354-7798

Access Statistics for this article

European Financial Management is currently edited by John Doukas

More articles in European Financial Management from European Financial Management Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().