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Are Bank Capital Ratios too High or too Low? Incomplete Markets and Optimal Capital Structure

Author

Listed:
  • Douglas Gale

    (New York University,)

  • Onur Özgür

    (New York University,)

Abstract

We study the effect of relative risk aversion on optimal capital structure in a general-equilibrium model of intermediation with incomplete markets. (JEL: D5, G2) Copyright (c) 2005 The European Economic Association.

Suggested Citation

  • Douglas Gale & Onur Özgür, 2005. "Are Bank Capital Ratios too High or too Low? Incomplete Markets and Optimal Capital Structure," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 690-700, 04/05.
    • Handle: RePEc:tpr:jeurec:v:3:y:2005:i:2-3:p:690-700
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    Citations

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    Cited by:

    1. Franklin Allen & Elena Carletti & Robert Marquez, 2011. "Credit Market Competition and Capital Regulation," The Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 983-1018.
    2. Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2017. "Macroprudential Policy, Countercyclical Bank Capital Buffers, and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments," Journal of Political Economy, University of Chicago Press, vol. 125(6), pages 2126-2177.
    3. Di Nicolo, G. & Gamba, A. & Lucchetta, M., 2011. "Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking," Other publications TiSEM 58ac9f00-92d7-497b-a76f-e, Tilburg University, School of Economics and Management.
    4. David Martinez-Miera & Rafael Repullo, 2019. "Monetary Policy, Macroprudential Policy, and Financial Stability," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 809-832, August.
    5. John Harding & Xiaozhong Liang & Stephen Ross, 2013. "Bank Capital Requirements, Capital Structure and Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(2), pages 127-148, April.
    6. Chen, Yehning, 2016. "Bank capital and credit market competition: Will competitive pressure lead to higher capital levels?," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 247-263.
    7. Allen Berger & Robert DeYoung & Mark Flannery & David Lee & Özde Öztekin, 2008. "How Do Large Banking Organizations Manage Their Capital Ratios?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 34(2), pages 123-149, December.
    8. Ambrocio, Gene & Jokivuolle, Esa, 2017. "Should bank capital requirements be less risk-sensitive because of credit constraints?," Research Discussion Papers 10/2017, Bank of Finland.
    9. Douglas Gale & Andrea Gamba & Marcella Lucchetta, 2018. "Dynamic Bank Capital Regulation in Equilibrium," 2018 Meeting Papers 680, Society for Economic Dynamics.
    10. Dean Corbae & Pablo D'Erasmo, 2014. "Capital requirements in a quantitative model of banking industry dynamics," Working Papers 14-13, Federal Reserve Bank of Philadelphia.
    11. Vaclav Broz & Dominika Kolcunova & Lukas Pfeifer, 2018. "Risk-Sensitive Capital Regulation," Occasional Publications - Edited Volumes, Czech National Bank, Research and Statistics Department, edition 1, volume 16, number rb16/1 edited by Simona Malovana & Jan Frait.
    12. repec:zbw:bofrdp:2017_010 is not listed on IDEAS
    13. Victoria Vanasco & Enrico Sette & Andrea Polo & José-Luis Peydró, 2020. "Risk Mitigating versus Risk Shifting: Evidence from Banks Security Trading in Crises," Working Papers 1219, Barcelona School of Economics.
    14. Oren Levintal, 2012. "Equity Capital, Bankruptcy Risk and the Liquidity Trap," Working Papers 2012-07, Bar-Ilan University, Department of Economics.
    15. Berger, Allen N. & Öztekin, Özde & Roman, Raluca A., 2023. "Geographic deregulation and bank capital structure," Journal of Banking & Finance, Elsevier, vol. 149(C).
    16. Malovaná, Simona & Kolcunová, Dominika & Brož, Václav, 2019. "Does monetary policy influence banks’ risk weights under the internal ratings-based approach?," Economic Systems, Elsevier, vol. 43(2), pages 1-1.
    17. Gersbach, Hans & Haller, Hans & Müller, Jürg, 2015. "The macroeconomics of Modigliani–Miller," Journal of Economic Theory, Elsevier, vol. 157(C), pages 1081-1113.
    18. Wang, Tianxi, 2013. "A model of leverage based on risk sharing," Economics Letters, Elsevier, vol. 119(1), pages 97-100.
    19. Ambrocio, Gene & Jokivuolle, Esa, 2017. "Should bank capital requirements be less risk-sensitive because of credit constraints?," Bank of Finland Research Discussion Papers 10/2017, Bank of Finland.
    20. Schmaltz, Christian & Heidorn, Thomas & Torchiani, Ingo, 2018. "Distance to compliance portfolios: An integrated shortfall measure for basel III," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 87-101.

    More about this item

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • G2 - Financial Economics - - Financial Institutions and Services

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