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  4. Risk shifting and the allocation of capital: A Rationale for macroprudential regulation
 
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Risk shifting and the allocation of capital: A Rationale for macroprudential regulation

Journal
Journal of Banking and Finance
ISSN
0378-4266
Type
journal article
Date Issued
2020
Author(s)
Kogler, Michael  
Abstract (De)
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.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Number
118
Pages
13
Official URL
https://www.sciencedirect.com/science/article/pii/S0378426620301564
URL
https://www.alexandria.unisg.ch/handle/20.500.14171/112906
Subject(s)

economics

finance

Division(s)

FGN - Institute of Ec...

Eprints ID
260627

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