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Bank Capital Regulation with Random Audits

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Author Info
Bhattacharya, Sudipto
Plank, Manfred
Strobl, Günter
Zechner, Josef

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Abstract

We consider a model of optimal bank closure rules (cum capital replenishment by banks), with Poisson-distributed audits of the bank's asset value by the regulator, with the goal of eliminating (ameliorating) the incentives of levered bank shareholders/managers to take excessive risks in their choice of underlying assets. The roles of (tax or other) subsidies on deposit interest payments by the bank, and of the auditing frequency are examined.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2597.

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Date of creation: Oct 2000
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Handle: RePEc:cpr:ceprdp:2597

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Related research
Keywords: Bank Capital Regulation; Bankers' Rents; Closure Rules; Poisson Audits; Risk-Shifting Incentives;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Samu Peura & Esa Jokivuolle, 2004. "Simulation-based stress testing of banks’ regulatory capital adequacy," Finance 0405003, EconWPA. [Downloadable!]
  2. Abel Elizalde, 2007. "From Basel I To Basel Ii: An Analysis Of The Three Pillars," Working Papers wp2007_0704, CEMFI. [Downloadable!]
  3. Peura, Samu & Jokivuolle, Esa, 2003. "Simulation-based stress testing of banks’ regulatory capital adequacy," Research Discussion Papers 4/2003, Bank of Finland. [Downloadable!]
  4. Jean-Charles Rochet, 2004. "Rebalancing the three pillars of Basel II," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 7-21. [Downloadable!]
  5. Delis, Manthos D & Staikouras, Panagiotis, 2009. "On-site audits, sanctions, and bank risk-taking: An empirical overture towards a novel regulatory and supervisory philosophy," MPRA Paper 16836, University Library of Munich, Germany. [Downloadable!]
  6. Nancy Silva, 2007. "Capital Regulation and Bank Risk Taking: Completing Blum’s Picture," Working Papers Central Bank of Chile 416, Central Bank of Chile. [Downloadable!]
  7. Xavier Freixas & Bruno Maria Parigi, 2007. "Banking Regulation and Prompt Corrective Action," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Christian A. Johnson, 2005. "Modelos de alerta temprana para pronosticar crisis bancarias: desde la extracción de señales a las redes neuronales," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Economics Department, vol. 20(1), pages 95-121, June. [Downloadable!]
  9. Pagès, H. & Santos, J., 2002. "Optimal Supervisory Policies and Depositor-Preferences Laws," Documents de Travail 91, Banque de France. [Downloadable!]
    Other versions:
  10. E. Agliardi, 2007. "Bank Closure Policies and Capital Requirements: a Note," Working Papers 603, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  11. Jijun Niu, 2008. "Bank Competition, Risk, and Subordinated Debt," Journal of Financial Services Research, Springer, vol. 33(1), pages 37-56, February. [Downloadable!] (restricted)
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