BIROn - Birkbeck Institutional Research Online

    Ex ante versus ex post regulation of bank capital

    Daripa, Arup and Varotto, S. (2005) Ex ante versus ex post regulation of bank capital. Working Paper. Birkbeck, University of London, London, UK.

    [img]
    Preview
    Text
    26972.pdf - Draft Version

    Download (514kB) | Preview

    Abstract

    The current debate on the new Basel Accord gives rise to a natural question about the appropriate form of capital regulation. We construct a simple framework to analyze this ssue. In our model the risk carried by a bank as well as managerial risk preference are a bank’s private information. We show that ex ante constraints waste the superior risk information of a bank, while an ex post regime makes full use of it. However, the latter is more vulnerable to the problem of unknown managerial risk-aversion. The results imply that the two regimes are complements, rather than substitutes. Further, under plausible conditions, an ex post regime emerges as the dominant element of the optimal combination. We use the results to shed light on current policy concerns. In particular, our results provides theoretical underpinning for the inclusion of pillar 2 alongside pillar 1 in Basel II.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0518
    Keyword(s) / Subject(s): Ex Ante Regulation, Ex Post Regulation, Asymmetric Information, Safety Loss, Overprotection Loss, Safety Bias, Basel II
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 29 Mar 2019 13:53
    Last Modified: 27 Jul 2019 05:21
    URI: http://eprints.bbk.ac.uk/id/eprint/26972

    Statistics

    Downloads
    Activity Overview
    57Downloads
    39Hits

    Additional statistics are available via IRStats2.

    Archive Staff Only (login required)

    Edit/View Item Edit/View Item