Regulation of Banks: Moving Targets

Carsten Nielsen

Rivista Internazionale di Scienze Sociali, 2012, vol. 120, issue 2, 215-224

Abstract: We investigate, in a model of perfectly competitive banks and a lower bound on the deposit rate that these banks may offer, the idea that, as a result of financial innovation, capital adequacy requirements may become ineffective in preventing banks from investing in risky assets which are, from the point of view of society, inefficient. We interpret this as one possible explanation of the seemingly repeated failure of the Basel accords to induce a desired level of prudence by the banks.

Keywords: Bank regulation; capital requirements; moral hazard; financial innovation (search for similar items in EconPapers)
JEL-codes: D43 D82 G21 G28 (search for similar items in EconPapers)
Date: 2012
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