Biswas, Swarnava and Koufopoulos, Kostas (2022) Bank capital structure and regulation: Overcoming and embracing adverse selection. Journal of Financial Economics. pp. 973-992. ISSN 0304-405X
Abstract
We study bank regulation under optimal contracting, absent exogenous distortions. In equilibrium, banks offer a senior claim (deposits) to external investors and retain equity; the return on equity is higher than the return on deposits due to a scarcity of skilled bankers. Inefficient equilibria emerge under asymmetric information. Optimally designed regulation restores efficiency. Our main result is that disclosure requirements by themselves can be endogenously costly because they may push the economy from a separating equilibrium to a less efficient equilibrium that pools good and bad banks, but always improve welfare when combined with capital regulation.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2021 Elsevier B.V. All rights reserved.This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 24 Jan 2022 17:30 |
Last Modified: | 02 Apr 2025 23:23 |
Published Version: | https://doi.org/10.1016/j.jfineco.2021.12.001 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1016/j.jfineco.2021.12.001 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:182881 |
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Filename: Bank_Capital_Structure_and_Regulation_Accepted_JFE_Version_28_11_2021_.pdf
Description: Bank Capital Structure and Regulation (Accepted JFE Version, 28-11-2021)
Licence: CC-BY-NC-ND 2.5