Arbeitspapier
Capital Regulation and Tail Risk
The paper studies risk mitigation associated with capital regulation, in a context when banks may choose tail risk assets. We show that this undermines the traditional result that higher capital reduces excess risk-taking driven by limited liability. When capital raising is costly, poorly capitalized banks may limit risk to avoid breaching the minimal capital ratio. A bank with higher capital has lesschance of breaching the ratio, so may actually take more risk. As a result, banks which have access to tail risk projects may take greater risk when highly capitalized.The results are consistent with stylized facts about pre-crisis bank behavior, and suggest implications for the optimal design of capital regulation.
- Language
-
Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. 11-039/2/DSF14
- Classification
-
Wirtschaft
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- Subject
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Bank Regulation
Risk Shifting
Capital Requirements
Tail Risk
Systemic Risk
Bankrisiko
Basler Akkord
Bankenliquidität
Bankenregulierung
- Event
-
Geistige Schöpfung
- (who)
-
Perotti, Enrico
Ratnovski, Lev
Vlahu, Razvan
- Event
-
Veröffentlichung
- (who)
-
Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2011
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Perotti, Enrico
- Ratnovski, Lev
- Vlahu, Razvan
- Tinbergen Institute
Time of origin
- 2011
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