Capital Adequacy Regulation: In Search of a Rationale
WFIC Working Paper No. 03-07
Posted: 18 Jun 2003
Date Written: September 2002
Capital adequacy regulation is often justified, directly or indirectly, by an appeal to the need to prevent financial crises. By contrast, we argue that, in the absence of a welfare-relevant pecuniary externality, banks will choose the socially optimal capital structure themselves, without government coercion.
Suggested Citation: Suggested Citation