The effects of capital requirements on good and bad risk-taking
N. Aaron Pancost and
Roberto Robatto
No 104, ESRB Working Paper Series from European Systemic Risk Board
Abstract:
We study optimal capital requirement regulation in a dynamic quantitative model in which nonfinancial firms, as well as households, hold deposits. Firms hold deposits for precautionary reasons and to facilitate the acquisition of production inputs. Our theoretical analysis identifies a novel general equilibrium channel that operates through firms’ deposits and mitigates the cost of increasing capital requirements. We calibrate our model and find that the optimal capital requirement is 18.7% but only 13.6% in a comparable model in which only households hold deposits. Our novel channel accounts for most of the difference. JEL Classification: E21, G21, G32
Keywords: capital requirements; deposit insurance; idiosyncratic risk; safe assets (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-ias and nep-rmg
References: Add references at CitEc
Citations:
Downloads: (external link)
https://www.esrb.europa.eu//pub/pdf/wp/esrb.wp104~85e633c704.en.pdf (application/pdf)
Related works:
Journal Article: The Effects of Capital Requirements on Good and Bad Risk-Taking (2023)
Working Paper: The Effects of Capital Requirements on Good and Bad Risk Taking (2019)
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:srk:srkwps:2019104
Access Statistics for this paper
More papers in ESRB Working Paper Series from European Systemic Risk Board 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications (officialpublications@ecb.int).