Bank Capitalization as a Signal
AbstractThe level of a bank‘s capitalization can effectively transmit information about its riskiness and therefore support market discipline, but asymmetry information may induce exaggerated or distortionary behavior: banks may vie with one another to signal confidence in their prospects by keeping capitalization low, and banks‘ creditors often cannot distinguish among them - tendencies that can be seen across banks and across time. Prudential policy is warranted to help offset these tendencies.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 12/114.
Date of creation: 01 May 2012
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-08 (All new papers)
- NEP-CBA-2012-07-08 (Central Banking)
- NEP-CTA-2012-07-08 (Contract Theory & Applications)
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- International Monetary Fund, 2008. "Innovation in Banking and Excessive Loan Growth," IMF Working Papers 08/188, International Monetary Fund.
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