In moral hazard models, bank shareholders have incentives to transfer wealth from the deposit insurer - that is, maximize put option value - by pursuing riskier strategies. For safe banks with large charter value, however, the risk-taking incentive is outweighed by the possibility of losing...

[...]We focus here on three types of capital ratios—riskweighted,leverage, and gross revenue ratios. For each ratio, weexamine what makes it actually or potentially useful for bankregulation and we ask whether it is indeed significantly relatedto subsequent bank failure. Perhaps not...

In moral hazard models, bank shareholders have incentives to transfer wealth from the deposit insurer - that is, maximize put option value - by pursuing riskier strategies. For safe banks with large charter value, however, the risk-taking incentive is outweighed by the possibility of losing...

Bank capital requirements would entail large social costs if they made resource allocation suboptimal and banking services costly by unduly limiting the banks' ability to lend. This paper considers three main factors that may make capital requirements relevant, namely, deposit insurance...