Reputation, risk-taking, and macroprudential policy

David Aikman (), Benjamin Nelson and Misa Tanaka

Journal of Banking & Finance, 2015, vol. 50, issue C, 428-439

Abstract: This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. In our model, unprofitable banks have strong incentives to invest in risky assets when macroeconomic fundamentals are good in order to avoid the stigma of being assessed as low ability by the market. We show that across-the-system countercyclical capital requirements that deter such gambling are constrained optimal when fundamentals are neither extremely weak nor extremely strong.

Keywords: Macroprudential policy; Credit booms; Bank capital regulation (search for similar items in EconPapers)
JEL-codes: E6 G01 G38 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (24)

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Working Paper: Reputation, risk-taking and macroprudential policy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:50:y:2015:i:c:p:428-439

DOI: 10.1016/j.jbankfin.2014.06.014

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