the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search


Submit Your Paper

In Rememberance: World Trade Center (WTC)

Export citation to:
- Text (plain)
- BibTeX

Do Capital Adequacy Requirements Reduce Risks in Banking?

by Jürg Blum of the University of Freiburg

May 1999

Abstract: In a dynamic framework it is shown that capital adequacy rules may increase a bank's riskiness. In addition to the standard negative effect of rents on risk attitudes of banks a further intertemporal effect has to be considered. The intuition behind the result is that under binding capital requirements an additional unit of equity tomorrow is more valuable to a bank. If raising equity is excessively costly, the only possibility to increase equity tomorrow is to increase risk today.

JEL Classification: G21, G28.

Keywords: Capital adequacy rules, Banking regulation, Risk taking.

Published in: Journal of Banking & Finance, Vol. 23, No. 5, (May 1999), pp. 755-771.

Books Referenced in this paper:  (what is this?)

Download paper (148K PDF) 17 pages

Most Cited Books within Supervisory Papers