We assess the influence of competition and capital regulation on the stability of the banking system. We particularly ask two questions: i) how does capital regulation affect (endogenous) entry; and ii) how do (exogenous) changes in the competitive environment affect bank monitoring choices and...

We document that within regional U.S. mortgage markets an increase in competition exerts differential effects on banks with large and small market shares. Large market share banks reduce capitalization and increase risk taking as a response to an increase in the intensity of competition, while...

Minimum capital requirement regulation forces banks to refund a substantial amount of their investments with equity. This creates a buffer against losses, but also in- creases the cost of funding. If higher refunding costs translate into higher loan interest rates, then borrowers are likely to...

Purpose: Customers of Islamic banking industry continue to be skeptical on Sharīʿah compliance of Islamic banks despite receiving fatwa from the competent authorities. The purpose of this paper is to quantify the Sharīʿah risk taken by Islamic banks, so that customers are better informed on...

We integrate Basel II (and III) regulations into the industrial organization approach to banking and analyze lending behavior and risk sensitivity of a risk-neutral bank. The bank is exposed to credit risk and may use credit default swaps (CDS) for hedging purposes. Regulation is found to induce...

This paper extends the literature on bank capital structure by modeling capital structure as a function of important public policy and bank regulatory characteristics of the home country, as well as of bank-specific variables, country-level macroeconomic conditions, and country-level financial...

This paper discusses the institutional changes needed in Europe if prompt corrective action (PCA) is to be effective in supervising and resolving cross-border banking groups. The paper identifies these changes starting with enhancements in the availability of information on banking groups’...

The great financial turmoil that started 2007 has brought bank regulation back into the political debate. There is talk about imposing new regulations on banks and other financial intermediaries. Yet, we are not convinced that it is completely understood how the existing regulation affects...

So far the discussion in Switzerland about the social costs and benefits of higher capital requirements resulting from the new Basel III Accord and the Swiss Too Big To Fail legislation has been heavily qualitative. This paper provides a quantitative view and estimates the long-run costs and...

This paper examines procyclicality of the financial system. The introduction describes the natural and regulatory sources of procyclicality, focusing on the potential procyclical effect of the current Basel II regulatory framework for banks. It also mentions the regulatory tools for mitigating...