Capital Adequacy Regulation: In Search of a Rationale

WFIC Working Paper No. 03-07

Posted: 18 Jun 2003

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Douglas M. Gale

New York University (NYU) - Department of Economics

Date Written: September 2002

Abstract

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

Allen, Franklin and Gale, Douglas M., Capital Adequacy Regulation: In Search of a Rationale (September 2002). WFIC Working Paper No. 03-07. Available at SSRN: https://ssrn.com/abstract=388740

Franklin Allen (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Douglas M. Gale

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States
(212) 998-8944 (Phone)
(212) 995-3932 (Fax)

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