Long run implications of «substantially heightened» bank capital requirements

Vincenzo Chiorazzo (), Pierluigi Morelli and Giovanni Battista Pittaluga
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Pierluigi Morelli: ABI - Centro Studi
Giovanni Battista Pittaluga: Università di Genova

BANCARIA, 2013, vol. 03, 37-48

Abstract: This paper contributes to the literature on the effects of changes in bank capital requirements in three ways: first, introducing the notion of (capital ratio) stabilizing Return on Assets; second, by estimating an econometric model for a sample of Italian banks over the period 2007-2012, it shows that the Modigliani-Miller theorem does not fully hold, underlining that increased capital requirements do tend to raise the weighted average cost of capital; third, it shows that, in the long run, increased capital ratios require a structural increase in bank profitability

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ban:bancar:v:3:y:2013:m:march:p:37-48

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