Banks' responses to binding regulatory capital requirements

Abstract

n recent years bank regulators have increased their focus on the adequacy of banking organizations ’ capital ratios. 1 The increased emphasis on capital regulation raises a number of interrelated questions. Is focusing on capital an efficient way to regulate banks? What is the best way to structure capital regulations? How do banks respond to different types of capital regulations? And what are the costs and benefits to banks of different ways of meeting capital regulations? This article focuses on the last two questions, examining banks ’ responses, and the costs associated with their responses, to capital regulations employed since the early 1980s. 2 Understanding banks ’ responses to capital regulations may be helpful in designing regulations that meet regulators ’ objectives. One objective of capital regulation has been to reduce the number of bank failures. Equity capital provides a cushion to absorb losses that would otherwise cause a bank to fail. Regulators have considered preventing failure an important goal at least in part because of concern that one bank’s failure may adversely affect the stability

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 18 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.