Market Structure, Monitoring and Capital Adequacy Regulation
Swiss Journal of Economics and Statistics (SJES), 1996, vol. 132, issue IV, 685-702
The paper discusses effort-aversion moral hazard in banks. When the evaluation and monitoring of loans requires private management effort, monitoring efforts are sensitive to the intensity of competition in the credit market. Equilibrium loan rates incorporate an oligopoly premium and a provision for bad loans. While competition reduces the oligopoly premium it also reduces monitoring incentives. Therefore, in line with recent evidence from Switzerland, loan provisions increase under deregulation, leaving the overall effect on firms' cost of finance ambiguous. Capital adequacy regulation tends to increase effort-aversion moral hazard. Furthermore it is shown that capital standards may amplify business cycles and, counter-productively, increase systemic risk. The model suggests a certain degree of complementarity between prudential and structural regulation for the banking industry.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ses:arsjes:1996-iv-15
Access Statistics for this article
Swiss Journal of Economics and Statistics (SJES) is currently edited by Rafael Lalive
More articles in Swiss Journal of Economics and Statistics (SJES) from Swiss Society of Economics and Statistics (SSES) Contact information at EDIRC.
Bibliographic data for series maintained by Peter Steiner ().