Regulation and Bankers' Incentives

Fabiana Gómez*, Jorge Ponce

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

217 Downloads (Pure)

Abstract

We study the effects of minimum capital requirements, capital buffers, liquidity regulation and loan loss provisions on the incentives of bankers to exert effort and take excessive risk. These regulations impact differently the behavior of bankers. Capital regulation, liquidity requirements and traditional loan loss provisions for expected losses provide adequate incentives to bankers. Capital requirements are the most powerful instrument. Counter-cyclical (so-called dynamic) loan loss provisions may provide bankers with incentives to gamble. The results help informing the ongoing debate about the harmonization of banking regulation and the implementation of Basel III.
Original languageEnglish
Pages (from-to)209-227
Number of pages19
JournalJournal of Financial Services Research
Volume56
Early online date12 Oct 2018
DOIs
Publication statusPublished - 1 Dec 2019

Structured keywords

  • AF Banking

Keywords

  • Banking regulation
  • minimum capital requirement
  • capital buffer
  • liquidity requirement
  • (counter-cyclical) loan loss provision
  • bankers' incentives
  • effort
  • risk

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