The role of regulatory credibility in effective bank regulation

摘要: This paper develops a model of regulated Brownian motion with an endogenous profit term to analyze the role regulatory credibility on stability and productivity banking system. We show that when intervention is perfect costless, volatility system can be substantially reduced no loss productivity. In fact, actually reduce intrinsically risky systems below less as banks anticipate mitigate their investment behaviour accordingly. However, regime weakened because increased uncertainty stemming from regulation, such random costs or imperfect timing intervention, both financial are impaired. Importantly, we find in presence credibility, there universal optimal policy rule. The depends regulator’s level absolute risk aversion.