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Erscheinungsjahr: 
2011
Schriftenreihe/Nr.: 
Tinbergen Institute Discussion Paper No. 11-039/2/DSF14
Verlag: 
Tinbergen Institute, Amsterdam and Rotterdam
Zusammenfassung: 
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.
Schlagwörter: 
Bank Regulation
Risk Shifting
Capital Requirements
Tail Risk
Systemic Risk
JEL: 
E6
F3
F4
G2
G3
O16
Dokumentart: 
Working Paper
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