Open AccessA Reassessment Of Regulated Bank Capital On Profitability And Risk
Author(s) -
Charles P. Corcoran
Publication year - 2010
Publication title -
the international business and economic research journal/the international business and economics research journal
Language(s) - English
Resource type - Journals
eISSN - 2157-9393
pISSN - 1535-0754
DOI - 10.19030/iber.v9i3.539
Subject(s) - capital requirement , capital adequacy ratio , profitability index , loan , capital (architecture) , insolvency , business , monetary economics , profit (economics) , economic capital , risk adjusted return on capital , unintended consequences , finance , economics , financial system , financial capital , capital formation , microeconomics , archaeology , political science , law , history
Banks must maintain minimum capital levels, but a regulated balance sheet implies profit suboptimization. Moreover, the presumptive role of minimum capital in reducing insolvency risk may be misplaced. Evidence is presented that suggests a bank’s level of capital may not accurately presage the risk of loan default. Regulators must exercise restraint in further increasing bank capital levels, as unintended consequences may make matters worse.