Optimal capital regulation / by Stéphane Moyen and Josef Schroth.: FB3-5/2017-6E-PDF

“We study constrained-efficient bank capital regulation in a model with market-imposed equity requirements. Banks hold equity buffers to insure against sudden loss of access to funding. However, in the model, banks choose to only partially self-insure because equity is privately costly. As a result, equity requirements are occasionally binding. Constrained-efficient regulation requires banks to build up additional equity buffers and compensates them for the cost of equity with a permanent increase in lending margins. When buffers are depleted, regulation relaxes the market-imposed equity requirements by raising bank future prospects through temporarily elevated lending margins"--Abstract, p. ii.

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Publication information
Department/Agency Bank of Canada.
Title Optimal capital regulation / by Stéphane Moyen and Josef Schroth.
Series title Bank of Canada staff working paper, 1701-9397 ; 2017-6
Publication type Series - View Master Record
Language [English]
Format Electronic
Electronic document
Note(s) "February 2017."
Includes bibliographical references.
Includes abstract in French.
Publishing information [Ottawa] : Bank of Canada, 2017.
Author / Contributor Moyen, Stéphane.
Schroth, Josef.
Description ii, 38 p. : charts
Catalogue number
  • FB3-5/2017-6E-PDF
Subject terms Banks
Capital
Regulation
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