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The conventional wisdom is that well-capitalized banks are less inclined to increase asset risk, because the option value of deposit insurance decreases with capitalization. There are, however, at least three shortcomings in the existing theories that cast doubt on the validity of the...
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We investigate the relationship between banks' capitalization and risk-taking behavior. The conventional wisdom is that well-capitalized banks are less inclined to increase asset risk, because the option value of deposit insurance decreases with capitalization. There are, however, at least three...
Persistent link: https://www.econbiz.de/10012737159
The relationship between banks' capitalizations and risk-taking behaviors has been one of the central issues in the banking literature because of its implications on regulatory policies. Despite the fact that a considerable amount of studies have been conducted concerning the issue, neither...
Persistent link: https://www.econbiz.de/10012732922
This paper provides a theoretical framework to investigate the relationship between banks' capitalization and risk-taking behavior. The conventional wisdom is that relatively well-capitalized banks are less inclined to increase asset risk, because the option value of deposit insurance decreases...
Persistent link: https://www.econbiz.de/10012739534