Capital Adequacy Rules and the Risk-Seeking Behavior of Banks: A Firm-Level Analysis

George Sheldon

Swiss Journal of Economics and Statistics (SJES), 1996, vol. 132, issue IV, 709-734

Abstract: Economic theory is unclear on the effects of capital regulation on the risk-seeking behavior of banks. This paper attempts to shed light on the issue by examining the impact of the implementation of the guidelines of the 1988 Basle Capital Accord on a large sample of individual banks drawn from the signatory countries. The empirical methodology is based on the call option interpretation of firm equity stemming from BLACK/SCHOLES. The results provide little evidence that the implementation of the Basle guidelines increased the probability of bank failure.

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:ses:arsjes:1996-iv-18

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