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Coordination of capital buffer and risk profile under supervision of Central Bank

Listed author(s):
  • Joao Andre Marques Pereira

    ()

    (Banco Central do Brasil)

  • Richard Saito

    ()

    (Escola de Administração de Empresas de São Paulo, Fundação Getúlio Vargas)

Registered author(s):

    This work investigates how banks react to the capital constraints imposed by the Central Bank. Using models that incorporate the simultaneity of capital decisions and risk decisions, our findings confirm the capital buffer theory, which predicts that adjustments to capital and adjustments to risk are positively related. Moreover, we find that regulatory pressures induce banks to increase their risk levels in response to capital adjustments but not vice versa.

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    File URL: http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/download/26393/56018
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    File URL: http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/26393
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    Article provided by Brazilian Society of Finance in its journal Brazilian Review of Finance.

    Volume (Year): 13 (2015)
    Issue (Month): 1 ()
    Pages: 74-101

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    Handle: RePEc:brf:journl:v:13:y:2015:i:1:p:74-101
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    References listed on IDEAS
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    11. Furlong, Frederick T. & Keeley, Michael C., 1989. "Capital regulation and bank risk-taking: A note," Journal of Banking & Finance, Elsevier, vol. 13(6), pages 883-891, December.
    12. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
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    14. Orgler, Yair E & Taggart, Robert A, Jr, 1983. "Implications of Corporate Capital Structure Theory for Banking Institutions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 212-221, May.
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