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Franchise Values, Regulatory Monitoring, and Capital Requirements in Optimal Bank Regulation

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  • Thomas Barnebeck Andersen

    (Thomas Barnebeck Andersen, Department of Economics, University of Copenhagen, Studiestræde 6, DK-1455, Copenhagen K, Denmark; email: Thomas.Barnebeck.Andersen@econ.ku.dk)

  • Thomas Harr

    (Thomas Harr, Standard Chartered Bank, Singapore.)

Abstract

This paper demonstrates that financial deregulation is likely to make standard prudential regulatory instruments less effective in curbing excessive risk-taking incentives among banks. This has interesting implications for optimal bank regulation. When there is an increase in competition, the optimal capital requirement should increase, whereas regulatory auditing should decrease. In contrast, when there is an increase in gambling yields, auditing should always increase, whereas the optimal capital requirement may increase or decrease.

Suggested Citation

  • Thomas Barnebeck Andersen & Thomas Harr, 2008. "Franchise Values, Regulatory Monitoring, and Capital Requirements in Optimal Bank Regulation," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(1), pages 81-101, January.
    • Handle: RePEc:sae:emffin:v:7:y:2008:i:1:p:81-101
    DOI: 10.1177/097265270700700104
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    References listed on IDEAS

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    Cited by:

    1. Mohamed Belhaj & Nataliya Klimenko, 2012. "Optimal Preventive Bank Supervision: Combining Random Audits and Continuous Intervention," Working Papers halshs-00790464, HAL.
    2. Thomas Barnebeck Andersen & Sam Jones & Finn Tarp, 2012. "The Finance–Growth Thesis: A Sceptical Assessment-super- †," Journal of African Economies, Centre for the Study of African Economies, vol. 21(suppl_1), pages -88, January.
    3. Isabel Strecker, 2024. "Gambling bank behaviour, incentive mechanism, and sanctions: A two-stage model," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(2), pages 197-208, June.

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    More about this item

    Keywords

    Bank Regulation; Imperfect Competition; Franchise Values; JEL Classification: G2; JEL Classification: L5;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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