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Regulation of Banks: Moving Targets


  • Carsten Nielsen

    () (Istituto di Politica Economica, Universita Cattolica, Milan)


We investigate, in a model of perfectly competitive banks and a lower bound on the deposit rate that these banks may offer, the idea that, as a result of financial innovation, capital adequacy requirements may become ineffective in preventing banks from investing in risky assets which are, from the point of view of society, inefficient. We interpret this as one possible explanation of the seemingly repeated failure of the Basel accords to induce a desired level of prudence by the banks.

Suggested Citation

  • Carsten Nielsen, 2012. "Regulation of Banks: Moving Targets," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(2), pages 215-224.
  • Handle: RePEc:vep:journl:y:2012:v:120:i:2:p:215-224

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    More about this item


    Bank regulation; capital requirements; moral hazard; financial innovation;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


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