Perotti, Enrico; Ratnovski, Lev; Vlahu, Razvan - de Nederlandsche Bank - 2011
The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk … assets. We show that this undermines the traditional result that higher 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 …