The impact of capital-based regulation on bank risk-taking: a dynamic model
AbstractIn this paper, we model the dynamic portfolio choice problem facing banks, calibrate the model using empirical data from the banking industry for 1984-1993, and assess quantitatively the impact of recent regulatory developments related to bank capital. The model suggests that two aspects of the new regulatory environment may have unintended effects: higher capital requirements may lead to increased portfolio risk, and capital-based premia do not deter risk-taking by well-capitalized banks. On the other hand, risk-based capital standards may have favorable effects provided the requirements are stringent enough.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 96-12.
Date of creation: 1996
Date of revision:
Other versions of this item:
- Paul Calem & Rafael Rob, . ""The Impact of Capital-Based Regulation on Bank Risk-Taking: A Dynamic Model''," CARESS Working Papres 97-16, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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