Bank failure, risk, and capital regulation Article

Barber, JR, Chang, CH, Thurston, DC. (1996). Bank failure, risk, and capital regulation . Journal of Economics and Finance, 20(3), 13-20. 10.1007/BF02920602

cited authors

  • Barber, JR; Chang, CH; Thurston, DC

abstract

  • This paper examines the effect of capital regulation on bank risk. It is shown that an increase in the capital-to-asset ratio reduces the riskiness of a bank's equity capital. Nevertheless, the probability of bank failure increases. The reason for this result is that the probability of bank failure depends upon both the risk and return of the asset portfolio. An increase in the capital requirement results in an optimal portfolio with a risk-return combination that has a higher probability of bank failure. © 1997 Springer.

authors

publication date

  • September 1, 1996

published in

Digital Object Identifier (DOI)

start page

  • 13

end page

  • 20

volume

  • 20

issue

  • 3