Capital Requirements, Market Power and Risk-Taking in Banking

Rafael Repullo

No 3721, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper presents a dynamic model of imperfect competition in banking where banks can invest in a prudent or a gambling asset. We show that if intermediation margins are small, the banks? franchise values will be small, and in the absence of regulation only a gambling equilibrium will exist. In this case, either flat-rate capital requirements or binding deposit rate ceilings can ensure the existence of a prudent equilibrium, although both have a negative impact on deposit rates. Such impact does not obtain with either risk-based capital requirements or non-binding deposit rate ceilings, but only the former are always effective in controlling risk-shifting incentives.

Keywords: Bank regulation; Capital requirements; Deposit rate ceilings; Moral hazard; Risk-shifting; Imperfect competition; Franchise values (search for similar items in EconPapers)
JEL-codes: D43 G21 G28 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://cepr.org/publications/DP3721 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Capital requirements, market power, and risk-taking in banking (2004)
Working Paper: Capital Requirements, Market Power and Risk-Taking in Banking (2002)
Working Paper: Capital requirements, market power, and risk-taking in banking (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3721

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3721

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().