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http://hdl.handle.net/10419/37204
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| Title: | | Managerial Prudence under Banking Regulation  |
| Authors: | | Buck, Florian |
| Issue Date: | | 2010 |
| Series/Report no.: | | Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Banking Regulation: Liquidity and Regulatory Capital A7-V3 |
| Abstract: | | This article provides a theoretical framework to analyze the impact of banking regulation on the risk-taking behavior of banks by incorporatig the incentives of three risk-neutral agents - the welfaristic regulator, the shareholder and the manager. While shareholders are assumed to maximize the discounted flow of bank profits, bank managers maximize expected income choosing from a menu of portfolios with different risk-return profiles. We show under which conditions capital requirements intensify the agency conflict between shareholders and bank managers if complete contracts are impossible. As a result, a government interested in alleviating this divergence will incorporate capital requirements to curb risk-appetite only in those cases in which managerial myopia and the probability of default in the banking-sector are not substantial. Moreover, our model suggests that direct regulation of a manager's bonus system is a substitute for any form of capital requirements. |
| Subjects: | | Subprime Crisis Banking regulation |
| JEL: | | G28 G38 G30 |
| Document Type: | | Conference Paper |
| Appears in Collections: | | Jahrestagung des Vereins für Socialpolitik 2010 (Kiel): Ökonomie der Familie
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