Schumpeterian Banks: Credit Reallocation and Capital Requirements
Type
discussion paper
Date Issued
2017-02
Author(s)
Abstract (De)
Capital reallocation from unprofitable to profitable firms is a key source of productivity gain in an innovative economy. We present a model of credit reallocation and focus on the role of banks: Weakly capitalized banks hesitate to write off non-performing loans to avoid a violation of regulatory requirements or even insolvency. Such behavior blocks credit to expanding industries and results in insufficient credit reallocation across sectors and a distorted capital allocation. Reducing the cost of bank equity, tightening capital requirements, and improving insolvency laws relaxes constraints and mitigates distortions.
Language
English
Publisher place
University of St Gallen
Subject(s)
Eprints ID
250534
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open.access
Name
SchumpeterianBanks_VfS.pdf
Size
314.5 KB
Format
Adobe PDF
Checksum (MD5)
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