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The Relationship between Bank Capital, Risk-Taking, and Capital Regulation: A Review of the Literature

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  • Stéphanie Stolz

Abstract

Bank capital regulation seems to be todayÂ’s most accepted regulatory instrument. The reasoning is that limited liability and deposit insurance appear to give banks incentives for excessive risk-taking. Capital requirements can alleviate this problem as banks are obliged to hold more capital which forces them to have more of their own funds at risk. But the theoretical literature has much more to say on how banks determine their capital structure and portfolio risk and how capital regulation influences this decision. This paper attempts to give an overview of the literature in order to see what theory suggests, what empirics seem to tell us, and what there is still to do for future research.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1105.

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Length: 34 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:kie:kieliw:1105

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Keywords: Banking regulation; deposit insurance; capital structure;

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References

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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.:
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Cited by:
  1. Chakraborty, Suparna & Allen, Linda, 2007. "Revisiting the Level Playing Field: International Lending Responses to Divergences in Japanese Bank Capital Regulations from the Basel Accord," MPRA Paper 1805, University Library of Munich, Germany.
  2. Mohamed Belhaj, 2010. "Capital Requirements For Operational Risk: An Incentive Approach," Working Papers halshs-00504163, HAL.
  3. Fernando Tenjo & Enrique López, . "Burbuja y Estancamiento del Crédito en Colombia," Borradores de Economia 215, Banco de la Republica de Colombia.
  4. David VanHoose, 2008. "Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(1), pages 1-14, March.

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