Crises and Capital Requirements in Banking
We analyze a general equilibrium model in which there is both adverse selection of, and moral hazard by, banks. The regulator can screen banks prior to giving them a licence, audit them ex post to learn the success probability of their projects, and impose capital adequacy requirements. Capital requ...
| Main Authors: | , |
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| Format: | Journal article |
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2005
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| _version_ | 1797067731148734464 |
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| author | Morrison, A White, L |
| author_facet | Morrison, A White, L |
| author_sort | Morrison, A |
| collection | OXFORD |
| description | We analyze a general equilibrium model in which there is both adverse selection of, and moral hazard by, banks. The regulator can screen banks prior to giving them a licence, audit them ex post to learn the success probability of their projects, and impose capital adequacy requirements. Capital requirements combat moral hazard when the regulator has a strong screening reputation, and they otherwise substitute for screening ability. Crises of confidence can occur only in the latter case, and contrary to conventional wisdom, the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks. |
| first_indexed | 2024-03-06T22:00:30Z |
| format | Journal article |
| id | oxford-uuid:4e6a9c6b-de49-4b90-8f0d-f497895adade |
| institution | University of Oxford |
| last_indexed | 2024-03-06T22:00:30Z |
| publishDate | 2005 |
| record_format | dspace |
| spelling | oxford-uuid:4e6a9c6b-de49-4b90-8f0d-f497895adade2022-03-26T16:01:07ZCrises and Capital Requirements in BankingJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:4e6a9c6b-de49-4b90-8f0d-f497895adadeSaïd Business School - Eureka2005Morrison, AWhite, LWe analyze a general equilibrium model in which there is both adverse selection of, and moral hazard by, banks. The regulator can screen banks prior to giving them a licence, audit them ex post to learn the success probability of their projects, and impose capital adequacy requirements. Capital requirements combat moral hazard when the regulator has a strong screening reputation, and they otherwise substitute for screening ability. Crises of confidence can occur only in the latter case, and contrary to conventional wisdom, the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks. |
| spellingShingle | Morrison, A White, L Crises and Capital Requirements in Banking |
| title | Crises and Capital Requirements in Banking |
| title_full | Crises and Capital Requirements in Banking |
| title_fullStr | Crises and Capital Requirements in Banking |
| title_full_unstemmed | Crises and Capital Requirements in Banking |
| title_short | Crises and Capital Requirements in Banking |
| title_sort | crises and capital requirements in banking |
| work_keys_str_mv | AT morrisona crisesandcapitalrequirementsinbanking AT whitel crisesandcapitalrequirementsinbanking |