TY - JOUR
T1 - The effect of solvency regulation to a bank
AU - Momota, Akira
AU - Maeda, Yasuo
N1 - Funding Information:
We would like to thank Hiroshi Osano, Ryuzo Sato (the editor of this Journal), an anonymous referee, and participants of the Finance Forum seminar and seminar at Nagoya University. Part of this research is financially supported by the Tezukayama Gakuen Foundation.
PY - 2004/4
Y1 - 2004/4
N2 - In this paper, we investigate how the solvency regulation of a bank affects resource allocation and welfare. We show that a banker's expected profit always decreases due to the solvency regulation, and more importantly, each depositor's expected utility is not necessarily improved by the solvency regulation in general. We also investigate how allocative efficiency measured by Kaldor criteria changes due to the solvency regulation, and show that the regulation increases the efficiency measured by this criteria if and only if the total amount of investment in a project increases in the economy.
AB - In this paper, we investigate how the solvency regulation of a bank affects resource allocation and welfare. We show that a banker's expected profit always decreases due to the solvency regulation, and more importantly, each depositor's expected utility is not necessarily improved by the solvency regulation in general. We also investigate how allocative efficiency measured by Kaldor criteria changes due to the solvency regulation, and show that the regulation increases the efficiency measured by this criteria if and only if the total amount of investment in a project increases in the economy.
KW - Allocative efficiency
KW - Solvency regulation
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U2 - 10.1016/S0922-1425(03)00022-7
DO - 10.1016/S0922-1425(03)00022-7
M3 - Article
AN - SCOPUS:1342269690
SN - 0922-1425
VL - 16
SP - 163
EP - 191
JO - Japan and The World Economy
JF - Japan and The World Economy
IS - 2
ER -