Chapter

Capital Regulation and Risk Management Strategy

Hrishikes Bhattacharya

in Banking Strategy, Credit Appraisal, and Lending Decisions

Second edition

Published in print October 2011 | ISBN: 9780198074106
Published online September 2012 | e-ISBN: 9780199080861 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780198074106.003.0001
Capital Regulation and Risk Management Strategy

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This chapter assesses the arguments for and against capital regulation. It shows that during the post-regulation period the assets generation of US banks halved while return on assets doubled and loss on assets increased by 2.5 times over the pre-regulation period. Capital regulation, therefore, resulted in higher risk of the banking industry. To protect the interests of the banks as well as their depositors, alternative strategies based on the concept of ‘value maintenance’ are presented, which upholds that a bank remains solvent as long as the market value of its assets is equal to the market value of its deposits.

Keywords: equity capital; return on assets; return on equity; income strategy; US banks; risk management; value maintenance; market value

Chapter.  12837 words.  Illustrated.

Subjects: Financial Markets

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