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Book Cover
Author Tressel, Thierry,

Title Optimal Prudential Regulation of Banks and the Political Economy of Supervision
Edition Online-ausg
Published Washington : International Monetary Fund, 2014
Online access available from:
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Description Online-Ressource (1 online resource (62 Seiten))
Series IMF Working Papers ; v. Working Paper No. 14/90
Summary Cover; Contents; I. Introduction; II. Literature; III. A Model of Bank Finance; A. Production and External Financing Technologies; B. Collusion and the Quality of Banking Supervision; IV. Firms' Financial Contracts; A. Incentives and Participation Constraints:; B. The Borrower's Maximization Program; V. Market Equilibrium; A. Choice of Financial Contracts; B. Decentralized Market Equilibrium; VI. Optimal Regulation of Bank Capital; A. Social Optimum; B. Fixed Capital Adequacy Rule; C. Optimal Capital Adequacy Rule; VII. Optimal Financial Regulation with Productive Externalities
A. An Economy with ExternalitiesB. Optimal Capital Adequacy Ratio; VIII. Political Economy of Banking Supervision; IX. Conclusion; Appendices; References
We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show that the optimal capital ratio depends on the macro-financial cycle, and that, in presence of production externalities, it should be complemented by a constraint on asset allocation. We show that the political process tends to exacerbate excessive risk tak
Notes Print version record
Form Electronic book
Author Verdier, Thierry,
ISBN 9781498384759