International Prudential Regulation, Regulatory Risk and Cost of Bank Capital
Keywords:
Basel Accord, bank capital regulation, cost of capital, regulatory risk, international harmonizationAbstract
We define regulatory risk as regulation that leads to an increase in the cost of capital for a regulated firm. In a general equilibrium setting, scholars have shown that uniform increases in capital requirements lead to an increase in the cost of capital. We extend their model to show that when regulatory standards differ across countries, financial integration leads to positive spillovers that reduce the cost of capital mark up for a given increase in bank capital. Accordingly, regulatory risk may be greater under a regulatory agreement such as the Basel Accord, which imposes international uniformity in capital ratios.
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Published
04-03-2008
How to Cite
Ngo, P. T. H. (2008). International Prudential Regulation, Regulatory Risk and Cost of Bank Capital. International Journal of Banking and Finance, 5(1), 27–58. Retrieved from https://e-journal.uum.edu.my/index.php/ijbf/article/view/8358
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