EconPapers    
Economics at your fingertips  
 

Has regulatory capital made banks safer? Skin in the game vs moral hazard

Ernest Dautovic ()

No 91, ESRB Working Paper Series from European Systemic Risk Board

Abstract: The paper evaluates the impact of a phased-in introduction of capital requirements on equity, risk-taking, and probability of default for a sample of European systemically important banks. Contrary to the case of a one-off introduction of capital requirements, this study does not find evidence of deleveraging through asset sales. A phased-in tightening promotes adjustment to lower leverage via an increase in equity thereby improving resilience and loss absorption capacity. The higher resilience comes at the cost of a portfolio reallocation towards riskier assets. Consistently with models on agency costs and gambling for resurrection, the risk-taking is driven by large and less profitable banks. The net impact on bank probabilities of default is positive albeit statistically insignificant, suggesting that risk-taking may crowd-out solvency. JEL Classification: E51, G21, G28, O52

Keywords: capital requirements; difference-in-difference; impact evaluation; macroprudential policy; risk-taking (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-rmg
Note: 2777855
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
https://www.esrb.europa.eu//pub/pdf/wp/esrb.wp91~4c70a46630.en.pdf (application/pdf)

Related works:
Working Paper: Has regulatory capital made banks safer? Skin in the game vs moral hazard (2020) Downloads
Working Paper: Has Regulatory Capital Made Banks Safer? Skin in the Game vs Moral Hazard (2019) Downloads
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:201991

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 ().

 
Page updated 2022-11-21
Handle: RePEc:srk:srkwps:201991