A Model of Self-Regulation in Banking Industry
14 Pages Posted: 5 Feb 2015
Date Written: February 4, 2015
This article derives a model of self-regulation where banks issue insurance products to hedge their own leverage ratio. This approach is an alternative policy to Basel regulation for controlling systemic risk without increasing equity level.
Then, we construct two insurability indicators informative about the attractiveness of these hedging instruments. Their implementation, on each of the 22 banks of 5 major countries from 2005 to 2012, reveals the cartography of fragility of several banks.
Suggested Citation: Suggested Citation