Bank Capital Regulation with Random Audits

Sudipto Bhattacharya, Josef Zechner, Günter Strobl and Manfred Plank

No 2597, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider a model of optimal bank closure rules (cum capital replenishment by banks), with Poisson-distributed audits of the bank's asset value by the regulator, with the goal of eliminating (ameliorating) the incentives of levered bank shareholders/managers to take excessive risks in their choice of underlying assets. The roles of (tax or other) subsidies on deposit interest payments by the bank, and of the auditing frequency are examined.

Keywords: Bank capital regulation; Closure rules; Poisson audits; Bankers' rents; Risk-shifting incentives (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2000-10
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Bank capital regulation with random audits (2002)
Working Paper: Bank capital regulation with random audits (2000)
Working Paper: Bank Capital Regulation With Random Audits (2000)
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