Liquidity and capital requirements and the probability of bank failure

Using the model of Rochet and Vives (2004), this note shows that a prudential regulator can in general not mitigate a bank's failure risk solely by means of liquidity requirements. However, their effectiveness can be restored if, in addition, minimum capital requirements are met. This provides a rationale for capital requirements beyond the commonly envoked reasoning that they are to be used to control the riskiness of banks' asset portfolios.

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Year of publication:	2010
Authors:	König, Philipp Johann
Publisher:	Berlin : Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
Subject:	Bankinsolvenz \| Bankenaufsicht \| Mindestreservepolitik \| Eigenkapitalvorschriften \| Bankenliquidität \| Spieltheorie \| Theorie \| prudential regulation \| liquidity requirements \| minimum capital requirements \| global games

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Series:	SFB 649 Discussion Paper ; 2010-027
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	628583729 [GVK] hdl:10419/39333 [Handle] RePEc:zbw:sfb649:sfb649dp2010-027 [RePEc]
Classification:	G21 - Banks; Other Depository Institutions; Mortgages ; G28 - Government Policy and Regulation
Source:	EconStor

Persistent link: https://www.econbiz.de/10010270814