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Long run implications of «substantially heightened» bank capital requirements

Author

Listed:
  • Vincenzo Chiorazzo

    (ABI - Centro Studi)

  • Pierluigi Morelli

    (ABI - Centro Studi)

  • Giovanni Battista Pittaluga

    (Università di Genova)

Abstract

This paper contributes to the literature on the effects of changes in bank capital requirements in three ways: first, introducing the notion of (capital ratio) stabilizing Return on Assets; second, by estimating an econometric model for a sample of Italian banks over the period 2007-2012, it shows that the Modigliani-Miller theorem does not fully hold, underlining that increased capital requirements do tend to raise the weighted average cost of capital; third, it shows that, in the long run, increased capital ratios require a structural increase in bank profitability

Suggested Citation

  • Vincenzo Chiorazzo & Pierluigi Morelli & Giovanni Battista Pittaluga, 2013. "Long run implications of «substantially heightened» bank capital requirements," BANCARIA, Bancaria Editrice, vol. 3, pages 37-48, March.
    • Handle: RePEc:ban:bancar:v:3:y:2013:m:march:p:37-48
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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