How do banks implement the capital regulation requirement?

Capital Regulation and Banks’ Financial Decisions

This paper develops a stochastic dynamic model to examine the impact of capital regulation on banks’ financial decisions. In equilibrium, lending decisions, capital buffer, and the probability of bank failure are endogenously determined. Compared to a flat-rate capital rule, a risk-sensitive capital standard causes the capital requirement to be much higher for small (and riskier) banks and much...

How Closely Do Banks Manage Vault Cash?

Beginning in 1959, Federal Reserve member banks were allowed to use both vault cash and deposits at Federal Reserve Banks to satisfy statutory reserve requirements. Prior to this time, member banks were restricted to satisfying required reserves solely with deposits at Federal Reserve Banks. Hence, member banks held currency in their vaults only to satisfy daily demands by depositors. Fluctuati...

How Do Cfos Make Capital Budgeting and Capital Structure Decisions?

How Do Cfos Make Capital Budgeting and Capital Structure Decisions?

e recently conducted a comprehensive survey that analyzed the current practice of corporate finance, with particular focus on the areas of capital budgeting and capital structure. The survey results enabled us to identify aspects of corporate practice that are but the opinions expressed herein do not necessarily represent the views of FEI. We thank the FEI executives who responded to the survey...

Accounting for Banks, Capital Regulation and Risk-Taking

This paper examines risk-taking incentives in banks under different accounting regimes with capital regulation. In the model the bank’s decisions of capital issuance and investment policy are jointly determined. Given exogenous minimum capital requirement, the bank is more likely to issue equity capital in excess of the minimum required level and implement less risky investment policy under eit...