Economics, Econometrics and Finance
4 years ago

Banks' Excess Capital Could Shrink Banking Sector, Impacting Borrowers.

RePEc: Research Papers in Economics
Why do banks hold capital in excess of regulatory requirements? A functional approach
Diemo Dietrich, Uwe Vollmer

Paper Summary

Banks hold more capital than required by rules to have leverage in renegotiating loans with borrowers. This extra capital can help banks collect loans better. However, having too much capital can limit how much money banks can borrow from investors, which might shrink the banking sector.

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