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Journal Article
The choice of capital instruments
A system of bank supervision and regulation should protect taxpayers and the financial system without imposing unnecessary costs on banks. This article focuses on whether existing capital regulations, one of the primary tools of bank supervision and regulation, are imposing unnecessary costs on banks. In particular, the capital requirements may be requiring banks to issue equity when it would be less costly for them to issue subordinated debt. ; The authors obtain evidence on the costs generated by equity issues by examining the type of capital banks issued in response to the capital ...
Journal Article
Banks' responses to binding regulatory capital requirements
Since the early 1980s U.S. bank regulators have focused increasingly on the adequacy of banks' capital ratios. This article begins with a review of the changes to U.S. capital regulations and theoretical models for determining banks' capital strategy. The authors then survey numerous studies that examine banks' responses, and the costs associated with their responses, to these regulations. ; The authors categorize banks' responses into two primary types. The first of these, termed cosmetic changes to the capital ratio, may be achieved in one of two ways: a bank may reduce its total assets ...