search query: @author Park, S. / total: 23
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| Author: | Park, S. |
| Title: | Risk-taking behavior of banks under regulation |
| Journal: | Journal of Banking and Finance
1997 : APR, VOL. 21:4, p. 491-507 |
| Index terms: | MORAL HAZARD BANKS REGULATIONS DEPOSIT INSURANCE FINANCIAL RISK |
| Language: | eng |
| Abstract: | This study derives the optimum combination of the capital ratio and the portfolio share of risky assets under regulation. Regulators sort out risky banks based on capital ratios and asset protfolios and prevent risky banks from attaining a positive option value, in the model. It is difficult to predict the response of a decision variable to a changed regulatory parameter of the variable, when bank regulation is multidimensional. This analysis can explain many phenomena that are seemingly inconsistent with the predictions of moral hazard models. When regulators are concerned about the asset portfolio as well as the capital ratio, the optimal strategy for many banks is to maintain a capital ratio higher than the one required by regulators. A positive relationship between the capital ratio and riskness of the asset portfolio appears to contradict moral hazard. |
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