Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?

摘要: In a dynamic model of moral hazard, competition can undermine prudent bank behavior. While capital-requirement regulation induce behavior, the policy yields Pareto-inefficient outcomes. Capital requirements reduce gambling incentives by putting equity at risk. However, they also have perverse effect harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes be achieved adding deposit-rate controls as regulatory instrument, since facilitate investment increasing values. Even if ceilings are not binding on equilibrium path, may useful in deterring off path.