The paper studies risk mitigation associated with capital regulation, in a context when 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. When capital raising is costly, poorly capitalized banks may limit risk to avoid breaching the minimal capital ratio …

adequacy related to credit risk. For the first time, it combines calibration of microprudential capital requirements and …/country-specific systematic factors, the model focuses on credit default concentration risk as a major source of large losses that may have … systemic impact. A test run using a sample of 12 systemically important German banks provides measures for systemic credit risk …