Perotti, Enrico C.; Ratnovski, Lev; Vlahu, Razvan - 2011
The paper studies risk mitigation associated with capital regulation, in a context when banks may choose tail risk … liability. When capital raising is costly, poorly capitalized banks may limit risk to avoid breaching the minimal capital ratio …. A bank with higher capital has lesschance of breaching the ratio, so may actually take more risk. As a result, banks …