Bank capital regulation and credit supply

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Banks can meet the need to increase their capital ratio either by issuing new equity or by reducing loans. It is generally known that banks prefer to reduce assets due to the high cost of equity. With a simple banking model we show that, if incumbent shareholders are to benefit, banks may prefer to reduce loans, even though they can recapitalize by issuing new equity without any cost. The result holds when banks hold relatively small amounts of long-term loans, or when the economy is in downturn. (C) 2010 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2011-02
Language
English
Article Type
Article
Keywords

RISK-TAKING; OWNERSHIP; INFORMATION; DECISIONS; FIRM

Citation

JOURNAL OF BANKING AND FINANCE, v.35, no.2, pp.323 - 330

ISSN
0378-4266
DOI
10.1016/j.jbankfin.2010.08.018
URI
http://hdl.handle.net/10203/96833
Appears in Collection
MT-Journal Papers(저널논문)
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