Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191028
Authors: 
Döttling, Robin
Year of Publication: 
2019
Abstract: 
How do near-zero deposit rates affect (optimal) bank capital regulation and risk taking? I study these questions in a tractable, dynamic equilibrium model, in which forward-looking banks compete imperfectly for deposit funding, subject to a (zero) lower bound constraint on deposit rates (ZLB). At the ZLB, capital requirements become less effective in curbing excessive risk-taking incentives, as they disproportionately hurt franchise values. As a consequence, optimal dynamic capital requirements vary with the level of interest rates if the ZLB binds occasionally. Subsidizing bank funding costs at the ZLB dampens risk-taking, but may reduce overall welfare.
Subjects: 
Zero lower bound
Search for yield
Capital regulation
Bank competition
Franchise value
JEL: 
G21
G28
E43
Document Type: 
Working Paper
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