TY  - GEN
AU  - Agénor, Pierre-Richard
AU  - Pereira da Silva, Luiz A.
TI  - Capital Requirements, Risk-Taking and Welfare in a Growing Economy
PY  - 2017
Y1  - 2017/03/28
DO  - 10.18235/0011782
AB  - 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.
UR  - https://doi.org/10.18235/0011782
ER  -