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Perotti, Enrico Camillo.

Capital Regulation and Tail Risk Enrico Camillo Perotti. [electronic resource] / Enrico Camillo Perotti. - Washington, D.C. : International Monetary Fund, 2011. - 1 online resource (38 p.) - IMF Working Papers; Working Paper ; No. 11/188 . - IMF Working Papers; Working Paper ; No. 11/188 .

The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk asserts. We show that this undermines the traditional result that high capital reduces excess risk-taking driven by limited liability. Moreover, higher capital may have an unintended effect of enabling banks to take more tail risk without the fear of breaching the minimal capital ratio in non-tail risky project realizations. The results are consistent with stylized facts about pre-crisis bank behavior, and suggest implications for the optimal design of capital regulation.

ISBN: 1462308260 : 18.00 USD

ISSN: 1018-5941

Standard No.: 10.5089/9781462308262.001 doi

Subjects--Topical Terms:
Banker
Banking
Capital Ratio
Criteria for Decision-Making Under Risk and Uncertainty
Financial Innovation
Financial Institutions and Services: Government Policy and Regulation

Subjects--Geographic Terms:
United States