Economics, Econometrics and Finance
3 years ago

Banks Inflate Capital Ratios, National Authorities Turn Blind Eye.

Journal of Financial and Quantitative Analysis
Supranational Rules, National Discretion: Increasing Versus Inflating Regulatory Bank Capital?
Reint Gropp, Thomas C. Mosk, Steven Ongena, Ines Simac, Carlo Wix

Paper Summary

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Banks inflate their capital ratios by adjusting regulations, not by increasing actual equity or reducing risk. This varies by country, showing that national authorities go easy on their banks to meet international rules, focusing on short-term gains.