This paper analyzes optimal bank capital requirements when regulation can be differentiated according to banks’ heterogeneous risk-assessment capabilities. The new Basel II Accord provides the opportunity to do by introducing distinct regulatory systems for banks authorized to apply internal...

How do near-zero interest rates affect bank competition, risk taking and regulation? I study these questions in a tractable dynamic general equilibrium model, in which forward-looking banks compete imperfectly for deposit funding, and deposit insurance may induce excessive risk taking. The zero...

We analyze the relationship between bank size and risk-taking under the New Basel Capital Accord. Using a model with imperfect competition and moral hazard, we show that the introduction of an internal ratings based (IRB) approach improves upon flat capital requirements if the approach is...

How do near-zero deposit rates affect (optimal) bank capital regulation and risk taking? I study these questions in a tractable, dynamic equilibrium model, in which forward-looking banks compete imperfectly for deposit funding, subject to a (zero) lower bound constraint on deposit rates (ZLB)....