University of Cambridge > Talks.cam > Isaac Newton Institute Seminar Series > Tail Risk, Capital Requirements and the Internal Agency Problem in Banks

Tail Risk, Capital Requirements and the Internal Agency Problem in Banks

Add to your list(s) Download to your calendar using vCal

If you have a question about this talk, please contact Mustapha Amrani.

Systemic Risk: Mathematical Modelling and Interdisciplinary Approaches

In this paper I show how to design capital requirements that would prevent the bank from manufacturing tail risk. In the model, the senior bank manager may have incentives to engage in tail risk. Bank shareholders can prevent the manager from taking on tail risk via the optimal incentive compensation contract. To induce shareholders to implement this contract, capital requirements should internalize its costs. Moreover, bank shareholders must be given incentives to comply with minimum capital requirements by raising new equity and expanding bank assets. Making bank shareholders bear the costs of compliance with capital regulation turns out to be crucial for motivating them to care about risk-management quality in their bank.

This talk is part of the Isaac Newton Institute Seminar Series series.

Tell a friend about this talk:

This talk is included in these lists:

Note that ex-directory lists are not shown.

 

© 2006-2020 Talks.cam, University of Cambridge. Contact Us | Help and Documentation | Privacy and Publicity