Bank Capital Regulation and Credit Supply

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For the increase of the bank capital adequacy ratio, banks can meet this requirement either by issuing new equity or by reducing loan. With a simple model with banks, we try to show two things. (i) If a bank's decision is made for the benefit of the incumbent shareholders, it may reduce risky loan for the new capital regulation even though it can re-capitalize by selling new equity to the public. (ii) If all the banks do so, there happens net deposit withdrawal, which may cause a further shrinkage of credit supply. A simple heuristic calibration with Korean data shows that these results may hold in a reasonable parameter value range.
Publisher
Korean Securities Association
Issue Date
2006
Language
ENG
Citation

2nd Proceeding of Korean Securities Association, 2006

URI
http://hdl.handle.net/10203/5410
Appears in Collection
MT-Conference Papers(학술회의논문)
Files in This Item
2006-080.pdf(246.66 kB)Download

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