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Lookup NU author(s): Dr Diemo DietrichORCiD,
Dr Achim Hauck
This is the authors' accepted manuscript of an article that has been published in its final definitive form by Routledge, 2019.
For re-use rights please refer to the publisher's terms and conditions.
A bank’s decision on loan supply and capital structure determines the future availability of internal funds, and hence its future costs of external ﬁnance and vulnerability to risks. This paper sets out to understand these intertemporal links and the inﬂuence of bank regulation on the dynamics of loan supply and bank stability. Our model builds on two assumptions, credit risk and ﬁnancial frictions. Together they create a trade-oﬀ between bank stability and eﬃciency of loan supply, both intratemporal and intertemporal. We study this model to analyze the eﬀects of a risk-weighted capital-to-asset ratio, counter-cyclical capital buﬀer, liquidity coverage ratio as well as a regulatory margin call. When risks are not observable by supervisors, only regulatory margin calls or liquidity coverage ratios achieve bank stability for all risks. However, for banks with large risks, both instruments will stop credit intermediation.
Author(s): Bucher M, Dietrich D, Hauck A
Publication type: Article
Publication status: Published
Journal: European Journal of Finance
Online publication date: 09/05/2019
Acceptance date: 23/04/2019
Date deposited: 29/10/2018
ISSN (print): 1351-847X
ISSN (electronic): 1466-4364
Notes: replaces working paper with the same title, available in Deutsche Bundesbank Discussion Paper Series 2018, No. 43/2018.
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