The cyclical behavior of optimal bank capital

摘要: Abstract This paper presents a dynamic model of optimal bank capital in which the optimizes over costs associated with failure, holding capital, and flows external capital. The solution to infinite-horizon stochastic optimization problem is related period-by-period value at risk (var) probability failure endogenously determined. Over cycle, var positively correlated but negatively net changes level total Analysis this pattern suggests that regulatory minimum requirement based on var, if binding, likely be procyclical. points several ways reducing problem. For example, var-based makes more sense it applied than US commercial data since 1984 are generally consistent model.