@misc{12701,
title = {Capital Requirements, Risk-Taking and Welfare in a Growing Economy},
author = {Agénor, Pierre-Richard and Pereira da Silva, Luiz A.},
year = {2017},
doi = {10.18235/0011782},
abstract = {The effects of capital requirements on risk-taking and welfare are studied in a stochastic overlapping generations model of endogenous growth with banking, limited liability, and government guarantees.  Capital producers face a choice between a safe technology and a risky (but socially inefficient) technology, and bank risk-taking is endogenous.  Setting the capital adequacy ratio above a structural threshold can eliminate the equilibrium with risky loans (and thus inefficient risk-taking), but numerical simulations show that this may entail a welfare loss.  In addition, the optimal ratio may be too high in practice and may concomitantly require a broadening of the perimeter of regulation and a strengthening of financial supervision to prevent disintermediation and distortions in financial markets.},
url = {https://doi.org/10.18235/0011782}
}