Capital Requirements, Market Powerand Risk-Taking in Banking

• Rafael Repullo ^[1]
  1. [1] Centro de Estudios Monetarios y Financieros (CEMFI)
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 8 (Working Paper No. 0208, November 2002), 2002
• Idioma: inglés
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• Dialnet Métricas: 1 Cita
• Resumen

  • This paper presents a dynamic model of imperfect competition in banking where the banks can invest in a prudent or a gambling asset. We show that if intermediation margins are small, the banks’ franchise values will be small, and in the absence of regulation only a gambling equilibrium will exist. In this case, either flat-rate capital requirements or binding deposit rate ceilings can ensure the existence of a prudent equilibrium, although both have a negative impact on deposit rates. Such impact does not obtain with either risk-based capital requirements or non binding deposit rate ceilings, but only the former are always effective in controlling risk-shifting incentives.