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Bank Capital Regulation With Random Audits

Author

Listed:
  • Sudipto Bhattacharya
  • Manfred Plank
  • Josef Zechner
  • Gunter Strobl

Abstract

We consider a model of optimal bank closure rules (cum capital replenishment by banks), with Poisson-distributed audits of the banks asset value by the regulator, with the goal of eliminating (ameliorating) the incentives of levered bank shareholder/mangers to take excessive risks in their choice of underlying assets. The roles of (tax or other) subsidies on deposit interest payments by the ban, and of the auditing frequency are examined

Suggested Citation

  • Sudipto Bhattacharya & Manfred Plank & Josef Zechner & Gunter Strobl, 2000. "Bank Capital Regulation With Random Audits," FMG Discussion Papers dp354, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp354
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp354.pdf
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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