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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
Year: 2019
Volume: 25
Issue: 16
Pages: 1527-1550
Online publication date: 09/05/2019
Acceptance date: 23/04/2019
Date deposited: 29/10/2018
ISSN (print): 1351-847X
ISSN (electronic): 1466-4364
Publisher: Routledge
URL: https://doi.org/10.1080/1351847X.2019.1614084
DOI: 10.1080/1351847X.2019.1614084
Notes: replaces working paper with the same title, available in Deutsche Bundesbank Discussion Paper Series 2018, No. 43/2018.
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