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dc.titleCapital Requirements, Risk-Taking and Welfare in a Growing Economy
dc.contributor.authorAgénor, Pierre-Richard
dc.contributor.authorPereira da Silva, Luiz A.
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.date.available2017-03-28T00:00:00
dc.date.issue2017-03-28T00:00:00
dc.description.abstractThe 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.
dc.format.extent40
dc.identifier.doihttp://dx.doi.org/10.18235/0011782
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Capital-Requirements-Risk-Taking-and-Welfare-in-a-Growing-Economy.pdf
dc.language.isoen
dc.mediumAdobe PDF
dc.publisherInter-American Development Bank
dc.subjectCapital Requirement
dc.subjectBank Risk-Taking
dc.subjectInvestment
dc.subjectEconomic Development
dc.subjectCapital Goods
dc.subjectFinancial Regulation
dc.subjectFinancial Market
dc.subject.jelcodeE44 - Financial Markets and the Macroeconomy
dc.subject.jelcodeG28 - Government Policy and Regulation
dc.subject.jelcodeO41 - One, Two, and Multisector Growth Models
dc.subject.keywordsrisky investments;financial stability;financial regulation
dc.typeWorking Papers
idb.identifier.pubnumberWorking Papers
idb.operationRG-T2426
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