Risk shifting and the allocation of capital: A Rationale for macroprudential regulation
| Item Type | Journal paper |
| Abstract | This paper reconsiders the risk-shifting problem of banks and presents a novel rationale for macroprudential regulation. The interplay between this agency problem and equilibrium investment creates a welfare-reducing pecuniary externality that causes capital misallocation and excessive bank risk taking. Therefore, the banking sector tends to be too large, under-capitalized, and inefficiently risky. This distortion is independent of typical frictions like government guarantees or default costs. Macroprudential regulation with capital requirements or deposit rate ceilings corrects misallocation thereby magnifying rent opportunities for banks to reduce risk shifting. Regulation is, however, no Pareto improvement and causes redistribution from households to bank owners. |
| Authors | Kogler, Michael |
| Journal or Publication Title | Journal of Banking and Finance |
| Language | English |
| Subjects | economics finance |
| HSG Classification | contribution to scientific community |
| Refereed | Yes |
| Date | 2020 |
| Publisher | Elsevier |
| Number | 118 |
| Number of Pages | 13 |
| ISSN | 0378-4266 |
| Official URL | https://www.sciencedirect.com/science/article/pii/... |
| Depositing User | Michael Kogler |
| Date Deposited | 09 Jul 2020 12:10 |
| Last Modified | 20 Jul 2022 17:42 |
| URI: | https://www.alexandria.unisg.ch/publications/260627 |
DownloadFull text not available from this repository.CitationKogler, Michael (2020) Risk shifting and the allocation of capital: A Rationale for macroprudential regulation. Journal of Banking and Finance, (118). ISSN 0378-4266 Statisticshttps://www.alexandria.unisg.ch/id/eprint/260627
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