Franchise Values, Regulatory Monitoring, and Capital Requirements in Optimal Bank Regulation

TY - JOUR

T1 - Franchise Values, Regulatory Monitoring, and Capital Requirements in Optimal Bank Regulation

AU - Andersen, Thomas Barnebeck

AU - Harr, Thomas

N1 - JEL Classification: G2, L5

PY - 2008

Y1 - 2008

N2 - This paper demonstrates that financial deregulation is likely to make standard prudential regulatory instruments less effective in curbing excessive risk-taking incentives among banks. This has interesting implications for optimal bank regulation. When there is an increase in competition, the optimal capital requirement should increase, whereas regulatory auditing should decrease. In contrast, when there is an increase in gambling yields, auditing should always increase, whereas the optimal capital requirement may increase or decrease.

AB - This paper demonstrates that financial deregulation is likely to make standard prudential regulatory instruments less effective in curbing excessive risk-taking incentives among banks. This has interesting implications for optimal bank regulation. When there is an increase in competition, the optimal capital requirement should increase, whereas regulatory auditing should decrease. In contrast, when there is an increase in gambling yields, auditing should always increase, whereas the optimal capital requirement may increase or decrease.

KW - Faculty of Social Sciences

KW - imperfect Competition

U2 - 10.1177/097265270700700104

DO - 10.1177/097265270700700104

M3 - Journal article

SN - 0972-6527

VL - 7

SP - 81

EP - 101

JO - Journal of Emerging Market Finance

JF - Journal of Emerging Market Finance

IS - 1

ER -