Veranstaltungen

15. November 2011, 16:00 bis 18:00

Minimum Capital Requirements, Bank Supervision and Special Resolution Schemes

Andere

This paper analyzes the incentive effects of special resolution schemes which were introduced in some countries during the recent financial crisis. These schemes allow regulators to take control over a systemically important financial institution before bankruptcy. We ask how special resolution schemes influence banks risk-taking and whether regulators should combine them with minimum capital requirements. We model a single bank which is supervised by a regulator who receives an imperfect signal about the banks probability of success. We obtain the following results: (i) The higher the signals quality and/or the more responsive the supply of deposits to the bank and/or the higher the projects rate of return, the less inclined the regulator to use capital requirements. (ii) In the presence of systemic costs, a capital requirement of 100% may not be sufficient to thwart the banks project plan.

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