The effectiveness of bank capital adequacy regulation: A theoretical and empirical approach |
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| Affiliation: | 1. Deutsche Bundesbank, Germany;2. European Central Bank, Germany, and International Monetary Fund, United States;3. De Nederlandsche Bank, Netherlands;1. The University of Hong Kong, Hong Kong;2. Stanford Graduate School of Business, United States;3. International Monetary Fund, United States;4. European Central Bank, Germany |
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| Abstract: | The aim of this paper is to analyse how banking firms set their capital ratios, that is, the rate of equity capital over assets. In order to study this issue, two theoretical models are developed. Both models demonstrate the existence of an optimal capital ratio; the first one for firms not affected by capital adequacy regulation, the second one for firms which are. The models have been tested by estimating a disequilibrium model using data from Spanish commercial banks. |
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