Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208268
Authors: 
Martinez-Miera, David
Repullo, Rafael
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper 2234
Abstract: 
We analyze the effect of bank capital requirements on the structure and risk of a financial system where markets, regulated banks, and shadow banks coexist. Banks face a moral hazard problem in screening entrepreneurs' projects, and they choose whether to be regulated or not. If regulated, a supervisor certifies their capital; if not, they have to rely on more expensive private certification. Under both risk-insensitive and risk-sensitive requirements, safer entrepreneurs borrow from the market and riskier entrepreneurs borrow from banks. But risk-insensitive (sensitive) requirements are especially costly for relatively safe (risky) entrepreneurs, which may shift from regulated to shadow banks.
JEL: 
G21
G23
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3496-1
Document Type: 
Working Paper

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