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- Title
Effects of Capital Requirements on Good and Bad Risk-Taking.
- Authors
Pancost, N Aaron; Robatto, Roberto
- Abstract
We study capital requirement regulation in a dynamic quantitative model in which nonfinancial firms, as well as households, hold deposits. A novel general equilibrium channel that operates through firms deposits mitigates the cost of increasing capital requirements. In the calibrated model, (a) the optimal capital requirement is 7.3 percentage points higher than in a comparable model in which all the deposits are held by households, and (b) setting the capital requirement higher than the true optimum is not as costly as one would gauge from the comparable model. We also provide some independent evidence that supports our novel channel.
- Subjects
CAPITAL requirements; RISK-taking behavior; HOUSEHOLDS &; economics; MANAGERIAL economics; LABOR supply; LABOR demand; ELASTICITY (Economics); COST
- Publication
Review of Financial Studies, 2023, Vol 36, Issue 2, p733
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhac037