Regulation and Bankers' Incentives

Fabiana Gómez; Jorge Ponce

doi:10.1007/s10693-018-0303-z

Regulation and Bankers' Incentives

Fabiana Gómez^*, Jorge Ponce

^*Corresponding author for this work

Research output: Contribution to journal › Article (Academic Journal) › peer-review

3 Citations (Scopus)

343 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 language	English
Pages (from-to)	209-227
Number of pages	19
Journal	Journal of Financial Services Research
Volume	56
Early online date	12 Oct 2018
DOIs	https://doi.org/10.1007/s10693-018-0303-z
Publication status	Published - 1 Dec 2019

Research Groups and Themes

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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AB - 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.

KW - Banking regulation

KW - minimum capital requirement

KW - capital buffer

KW - liquidity requirement

KW - (counter-cyclical) loan loss provision

KW - bankers' incentives

KW - effort

KW - risk

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DO - 10.1007/s10693-018-0303-z

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SN - 0920-8550

VL - 56

SP - 209

EP - 227

JO - Journal of Financial Services Research

JF - Journal of Financial Services Research

ER -

Regulation and Bankers' Incentives

Abstract

Research Groups and Themes

Keywords

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