Capital regulation and risk sharing

Douglas Gale

    Research output: Contribution to journalArticlepeer-review

    Abstract

    Capital requirements are the principal tool of macroprudential regulation of banks. Bank capital serves both as a buffer and as a disincentive to excessive risk taking. When general equilibrium effects are taken into account, however, it is not clear that higher capital requirements will reduce the level of risk in the banking system. In addition, an increase in the required capital ratio can force banks to take on more risk in order to achieve target rates of return.

    Original languageEnglish (US)
    Pages (from-to)187-204
    Number of pages18
    JournalInternational Journal of Central Banking
    Volume6
    Issue number4
    StatePublished - Dec 2010

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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