A Theory of Precautionary Regulatory Capital in Banking-super-
AbstractThe orthodox assumption in the banking literature is that capital requirements are a binding constraint on banking behavior. This is in conflict with the empirical observation that banks hold a buffer of capital well in excess of the minimum requirements. This paper develops a model where capital is endogenously determined within a profit-maximizing equilibrium. Optimality involves balancing the reduction in expected costs associated with regulatory breach with the excess cost of financing from increasing capital. We demonstrate that when the equilibrium probability of regulatory breach is less than one-half, banks are expected to hold precautionary capital. Copyright (c) International Review of Finance Ltd. 2007.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by International Review of Finance Ltd. in its journal International Review of Finance.
Volume (Year): 6 (2006)
Issue (Month): 3-4 ()
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1369-412X
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.