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SUMMARY:Tail Risk\, Capital Requirements and the Internal Agency Problem i
 n Banks - Klimenko\, N (Universitt Zrich)
DTSTART:20141215T143000Z
DTEND:20141215T151500Z
UID:TALK56710@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:In this paper I show how to design capital requirements that w
 ould prevent the bank from manufacturing tail risk. In the model\, the sen
 ior bank manager may have incentives to engage in tail risk. Bank sharehol
 ders can prevent the manager from taking on tail risk via the optimal ince
 ntive compensation contract. To induce shareholders to implement this cont
 ract\, capital requirements should internalize its costs. Moreover\, bank 
 shareholders must be given incentives to comply with minimum capital requi
 rements by raising new equity and expanding bank assets. Making bank share
 holders bear the costs of compliance with capital regulation turns out to 
 be crucial for motivating them to care about risk-management quality in th
 eir bank.\n
LOCATION:Seminar Room 1\, Newton Institute
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