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The Effect of Stricter Capital Regulation on Banks' Risk‐Taking: Theory and Evidence

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

DOI

A simple portfolio choice model shows that, when a bank's capital is constrained by regulation, regulatory cost (risk weightings) alters the risk and value calculations for the bank's assets. In particular, we find that banks may respond to stricter regulation by increasing the share of high‐risk assets. Our empirical results show that U.S. banks responded to the implementation of the stricter Basel II regulations by increasing the share of high‐risk assets in the risky part of their portfolios.

Publikationsoplysninger

OriginalsprogEngelsk
TidsskriftEuropean Financial Management
Antal sider35
ISSN1354-7798
DOI
StatusUdgivet - 11 nov. 2018

Bibliografisk note

Epub ahead of print. Published online: 11. November 2018

    Forskningsområder

  • Banks, Asset risk, Credit risk, Portfolio choice, Risk-based capital regulation

ID: 57158822