Bank Capital Regulation in General EquilibriumGary Gorton, Andrew Winton
NBER Working Paper No. 5244 We study whether the socially optimal level of stability of the banking system can be implemented with regulatory capital requirements in a multi-period general equilibrium model of banking. We show that: (i) bank capital is costly because of the unique liquidity services provided by demand deposits, so a bank regulator may optimally choose to have a risky banking system; (ii) even if the regulator prefers more capital in the system, the regulator is constrained by the private cost of bank capital, which determines whether bank shareholders will agree to meet capital requirements rather than exit the industry.
This paper is available as PDF (753 K) or via email.
Machine-readable bibliographic record - MARC, RIS, BibTeX Document Object Identifier (DOI): 10.3386/w5244 Users who downloaded this paper also downloaded these:
|
Contact Us
People
James Poterba, presidentJames Poterba is President of the National Bureau of Economic Research. He is also the Mitsui Professor of Economics at M.I.T. |
NBER ResearchersResearchers by NBER ProgramComplete NBER Research Family List |
 |
Other People LinksStaffBoard of Directors |