Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173845
Authors: 
Agénor, Pierre-Richard
da Silva, Luiz A. Pereira
Year of Publication: 
2017
Series/Report no.: 
IDB Working Paper Series IDB-WP-771
Abstract: 
The effects of capital requirements on risk-taking and welfare are studied in a stochastic overlapping generations model of endogenous growth with banking, limited liability, and government guarantees. Capital producers face a choice between a safe technology and a risky (but socially inefficient) technology, and bank risk-taking is endogenous. Setting the capital adequacy ratio above a structural threshold can eliminate the equilibrium with risky loans (and thus inefficient risk-taking), but numerical simulations show that this may entail a welfare loss. In addition, the optimal ratio may be too high in practice and may concomitantly require a broadening of the perimeter of regulation and a strengthening of financial supervision to prevent disintermediation and distortions in financial markets.
Subjects: 
Capital requirements
Bank risk-taking
Growth and welfare
JEL: 
E44
G28
O41
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode
Document Type: 
Working Paper
Social Media Mentions:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.