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Bank Pricing and Risk-Adjusted Capital Requirements

Author

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  • Kevin T. Davis

    (Department of Accounting and Business Law, University of Melbourne, Parkville VIC 3052.)

Abstract

This paper develops a methodology for analysing the impact of the risk-weighting approach to bank capital adequacy upon bank pricing. The approach, based on a capital-budgeting framework, considers how the risk weights constrain bank leverage and the likely effects upon bank funding costs. The approach is used to examine the validity of several commonly held views about the likely impacts of risk-adjusted capital requirements.

Suggested Citation

  • Kevin T. Davis, 1990. "Bank Pricing and Risk-Adjusted Capital Requirements," Australian Journal of Management, Australian School of Business, vol. 15(2), pages 243-259, December.
    • Handle: RePEc:sae:ausman:v:15:y:1990:i:2:p:243-259
    DOI: 10.1177/031289629001500202
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    References listed on IDEAS

    as
    1. Mervyn K. Lewis & Kevin T. Davis, 1987. "Domestic and International Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121263, December.
    2. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
    3. Warren P. Hogan & Ian G. Sharpe, 1988. "Supervision Of Bank Exit: A Note," Economic Papers, The Economic Society of Australia, vol. 7(2), pages 71-77, June.
    4. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
    5. Herring, Richard J & Vankudre, Prashant, 1987. "Growth Opportunities and Risk-Taking by Financial Intermediaries," Journal of Finance, American Finance Association, vol. 42(3), pages 583-599, July.
    6. Sealey, C W, Jr, 1983. "Valuation, Capital Structure, and Shareholder Unanimity for Depository Financial Intermediaries," Journal of Finance, American Finance Association, vol. 38(3), pages 857-871, June.
    7. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
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