Bank regulation, crisis risk, and investment incentives
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28 Jan 2020
12:30-14:15, Butler Room, Nuffield College
- Economic Theory Lunchtime Workshop Add to Calendar
University of Oxford
co-author: John Cochrane
Standard analyses of optimal bank capital requirements used by policy makers effectively assume risk neutrality despite risk aversion being fundamental to the problem that they address. Moreover, by reducing the probability and severity of financial crises, greater bank capital affects stochastic discount factors and hence investment incentives. We show in a simple model how this effect is typically positive because investment incentives are usually stronger when crisis risk is reduced.
The Economic Theory Lunchtime Workshops are convened by Meg Meyer.