2010-05-18Buch DOI: 10.18452/4255
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.
Files in this item
No license information