Bank Capital Regulation With Random Audits

Sudipto Bhattacharya, Manfred Plank, Günter Strobl, Josef Zechner

Publication: Scientific journalJournal articlepeer-review


We consider a model of optimal bank closure rules (cum capital replenishment by banks), with Poisson-distributed audits of the bank’s asset value by the regulator, with the goal of eliminating (ameliorating) the incentives of levered bank shareholders/managers to take excessive risks in their choice of underlying assets. The roles of (tax or other) subsidies on deposit interest payments by the bank, and of the auditing frequency are examined. 2002 Elsevier Science B.V. All rights reserved
Original languageEnglish
Pages (from-to)1301 - 1321
JournalJournal of Economic Dynamics & Control
Issue number7-8
Publication statusPublished - 2002

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