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Why do banks hold capital in excess of regulatory requirements?
Diemo Dietrich/Uwe Vollmer
共14页
This paper explains why banks hold a capital ratio in excess of regulatory requirements. We demonstrate that banks can use capital ratios as a strategic tool for renegotiating loans with borrowers. Since the ability of banks to commit to a harsh treatment of borrowers depends on the capital ratio in a non-monotonic way, a bank may be
forced to exceed capital requirements.
1. Introduction
2. Determinants of a bank’s capital structure
2.1. Financial contracts with the risk of renegotiation break down
2.2. Bank finance
3. Effects of minimum capital adequacy ratios
4. Pro-cyclicality of bank lending
5. Concluding remarks
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