Capital regulation, bank competition, and financial stability

Capital regulation, bank competition, and financial stability

We analyze capital requirements if banks compete for loans and deposits. Banks and firms are subject to a risk-shifting problem. The ambiguous effect of competition on banks’ risk-taking translates into an ambiguous effect of capital requirements on financial stability. ► Banks compete for loans and...

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Veröffentlicht in:Economics letters 2011-12, Vol.113 (3), p.256-258
Hauptverfasser: Hakenes, Hendrik, Schnabel, Isabel
Format: Artikel
Sprache:eng
Schlagworte:
Bank competition
Bank loans
Banking stability
Capital
Capital regulation
Capital requirements
Competition
Competition between banks
Economic stability
Regulation of financial institutions
Risk management
Risk-shifting
Studies
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Beschreibung
Zusammenfassung:We analyze capital requirements if banks compete for loans and deposits. Banks and firms are subject to a risk-shifting problem. The ambiguous effect of competition on banks’ risk-taking translates into an ambiguous effect of capital requirements on financial stability. ► Banks compete for loans and deposits. ► Banks and firms are subject to risk-shifting problems. ► Stricter bank capital requirements raise firms’ risk-taking. ► Stricter bank capital requirements may also raise banks’ risk-taking. ► Capital requirements may destabilize the banking sector.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2011.07.008