Topic
Minimum capital
About: Minimum capital is a research topic. Over the lifetime, 462 publications have been published within this topic receiving 9205 citations.
Papers published on a yearly basis
Papers
TL;DR: In this article, a bank's capital structure affects its liquidity creation and credit-creation functions in addition to its stability, and the consequent trade-offs imply an optimal bank capital structure.
Abstract: Banks can create liquidity precisely because deposits are fragile and prone to runs. Increased uncertainty makes deposits excessively fragile, creating a role for outside bank capital. Greater bank capital reduces the probability of financial distress but also reduces liquidity creation. The quantity of capital influences the amount that banks can induce borrowers to pay. Optimal bank capital structure trades off effects on liquidity creation, costs of bank distress, and the ability to force borrower repayment. The model explains the decline in bank capital over the last two centuries. It identifies overlooked consequences of having regulatory capital requirements and deposit insurance. DOES BANK CAPITAL STRUCTURE MATTER, and if so, how should it be set? Most work on the subject extrapolates an answer from prior work on the capital structure of industrial firms. But bank assets and functions are not the same as those of industrial firms. In fact, one strand of the banking literature suggests banks have a role precisely because they do not suffer the asymmetric information costs of issuance faced by industrial firms (see Gorton and Pennacchi (1990)). Therefore, to really understand the determinants of bank capital structure, we should start by modeling the essential functions banks perform, and then ask what role capital plays. Using this approach, we can see that a bank's capital structure affects its liquiditycreation and credit-creation functions in addition to its stability. The consequent trade-offs imply an optimal bank capital structure. Because customers rely to different extents on liquidity and credit, bank capital structure also determines the nature of the bank's clientele. Our approach will help us better understand the impact of regulations such as minimum capital requirements, and also help suggest the consequences of different recapitalization policies in a banking crisis. We start by describing the functions a bank performs. Consider a world where a number of entrepreneurs each has a project in need of funding. Each entrepreneur has specific abilities vis 'a vis his project so that the cash flows he can generate exceed what anyone else can generate from it. An entrepreneur cannot commit his human capital to the project, except on a
1,284 citations
TL;DR: Laeven and Majnoni as discussed by the authors explored the available evidence about bank provisioning practices around the world and found that in the vast majority of cases banks tend to delay provisioning for bad loans until it is too late.
835 citations
TL;DR: In this paper, the consequences of capital regulations on the portfolio choices of commercial banks are investigated. But the authors focus on the risk-based insurance premia and do not consider the effect of the risk on the investment decisions of the banks.
790 citations
TL;DR: In this article, the authors examined micro evidence on the effect of bank capital requirements on loan supply by regulated banks and on the ability of substitute sources of credit to offset changes in credit supply by affected banks.
Abstract: The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case that: (i) changes in capital requirements affect loan supply by regulated banks, and (ii) unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence—lacking to date—on both questions, using a unique data set. In the UK, regulators have imposed time-varying, bank-specific minimum capital requirements since Basel I. It is found that regulated banks (UK-owned banks and resident foreign subsidiaries) reduce lending in response to tighter capital requirements. But unregulated banks (resident foreign branches) increase lending in response to tighter capital requirements on a relevant reference group of regulated banks. This “leakage” is substantial, amounting to about one-third of the initial impulse from the regulatory change.
612 citations
1 Jan 1995
TL;DR: In this paper, the role of government regulation in modern banking firms in developed financial markets is discussed. But the main purpose of this paper is to evaluate the role that government regulation plays in modern banks.
Abstract: Banking firms around the world operate under extensive government supervision and regulation. In part, these regulatory structures seek to reduce the likelihood that individual banks will fail, and these are the regulatory components which I define as ‘prudential’ in this chapter. Prudential regulations include minimum capital requirements, liquidity or loan portfolio diversification standards, limitations on a bank’s investment portfolio or lines of business, and other restrictions intended to limit the type of risks which a banking firm may undertake. This chapter’s main purpose is to evaluate the role of prudential government regulation of modern banking firms in developed financial markets. This evaluation cannot be undertaken without first establishing the appropriate purpose of government bank regulation. Indeed, an argument for prudential regulation implicitly asserts that the supervision and control exerted by private market forces is somehow inappropriate. Carefully specifying and addressing this contention constitutes a large part of my analysis here.
493 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2023 | 4 |
| 2022 | 1 |
| 2021 | 10 |
| 2020 | 13 |
| 2019 | 24 |
| 2018 | 18 |