Template-type: ReDIF-Paper 1.0
Author-Name: Elena Carletti
Author-Name: Roberto Marquez
Author-Name: Silvio Petriconi
Title:The redistributive effects of bank capital regulation
Abstract: We build a general equilibrium model of banks’ optimal capital structure, where bankruptcy is costly and investors have heterogenous endowments and incur a cost for participating in equity markets. We show that banks raise both deposits and equity, and that investors are willing to hold equity only if adequately compensated. We then introduce (binding) capital requirements and show that: (i) it distorts investment away from productive projects toward storage; or (ii) it widens the spread between the returns to equity and to deposits. These results hold also when we extend the model to incorporate various rationales justifying capital regulation.
Classification-JEL: G21, G28
Keywords:limited market participation, bank capital structure, capital regulation, investor returns
Length: 57
Number: 18102
Creation-Date: 2018
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp18102.pdf
File-Format: application/pdf
File-Size: 1147
Handle: RePEc:baf:cbafwp:cbafwp18102