This paper develops a model of bank behavior that focuses on the interaction between the incentives created by fixed rate deposit insurance and a bank's choice of its loan portfolio and its portfolio of market-traded financial assets. The model is used to analyze the consequences of adopting the...

This study assesses the state of the policy debate that surrounds the Federal regulation of margin requirements. A relatively comprehensive review of the literature finds no undisputed evidence that supports the hypothesis that margin requirements can be used to control stock return volatility...

At present, there is no regulatory capital requirement for the market risk exposures a bank takes in its trading account activities. Alternative approaches are being considered for setting regulatory capital requirements on such risks. One proposal would use a regulatory model for measuring such...

Shortcomings make credit VaR estimates an unsuitable basis for setting bank regulatory capital requirements. If, alternatively, banks are required to issue subordinated debt that has a minimum market value and maximum acceptable probability of default, banks must set their equity capital in a...

This paper considers characteristics of the capital requirements proposed in The New Basel Capital Accord (2001). Formal analysis identifies calibration features that could give rise to unintended consequences that may include: concentration of credit risk in institutions that are less well...

Value-at-risk (VaR) models often are used to estimate the equity investment that is required to limit the default rate on funding debt. Typical VaR quot;buffer stockquot; capital calculations produce biased estimates. To ensure accuracy, VaR must be modified by (1) measuring loss relative to...

Although margin requirements would arise naturally in the context of unregulated trading of clearinghouse-guaranteed derivative contracts, the margin requirements on U.S. exchange-traded derivative products are subject to government regulatory oversight. At present, two alternative methodologies...

Risk exposures are typically quantified in terms of a quot;Value at Riskquot; (VaR) estimate. A VaR estimate corresponds to a specific critical value of a portfolio's potential one-day profit and loss probability distribution. Given their function both as internal risk management tools and as...

Risk exposures are typically quantified in terms of a quot;value at riskquot; (VaR) estimate. A VaR estimate corresponds to a specific critical value of a portfolio's potential one-day profit and loss distribution. Given their functions both as internal risk management tools and as potential...

Proponents of a securities transactions tax have suggested that such a tax may reduce stock return volatility. The argument is that, to the extent that short term speculative trading volume is the source of excess volatility, a tax that reduces such volume will reduce volatility. In the context...