The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk … assets. We show that this undermines the traditional result that higher capital reduces excess risk-taking driven by limited … liability. Moreover, higher capital may have an unintended e¤ect of enabling banks to take more tail risk without the fear of …

low, so it may end up exacerbating the inherent pro-cyclicality of risk-sensitive bank capital regulation. We also note …

compensation of financial executives. This increase has been associated with greater risk-taking and the use of more complex … results in higher risk-taking, a larger and more productive financial sector with greater income inequality (within and across …

adequately reflects risk. On both accounts the evidence indicates that the new Basel Accord should have a limited effect on …

In this paper we investigate whether banks that borrow from other banks have lower risk levels. We concentrate on a … hypothesis that long-term interbank exposures result in lower risk of the borrowing banks. …

We study empirically the effect of focus (specialization) versus diversification on the return and the risk of banks … deterioration in bank monitoring quality at high levels of risk and a deterioration in bank monitoring quality upon lending … endogenously producing riskier loans for all banks in our sample; this effect being most powerful for high-risk banks. Sectoral …

banking. Moreover, pre-crisis incentive pay appears too strong for an optimal trade-off between trading income and risk which …

, borrowers take on less risk exposure than non-borrowers. A larger risk exposure by borrowers may occur as well, however …, borrowers' default policies render binary options useful instruments for lenders in hedging the credit-risk component of their … and volatility in contrast to the exogenously assumed constant mean and volatility in many credit risk models. We consider …

) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies … that low-risk firms will achieve reductions in their loan rates by borrowing from banks adopting the IRB approach, while … high-risk firms will avoid increases in their loan rates by borrowing from banks that adopt the less risk …

capital adequacy and banks’ increasing focus on the risk-return profile in commercial lending. Therefore, the components of …