Crises and Capital Requirements in Banking

  title={Crises and Capital Requirements in Banking},
  author={Alan D. Morrison and Lucy White},
We analyze a general equilibrium model in which there is both adverse selection of, and moral hazard by, banks. The regulator can screen banks prior to giving them a licence, audit them ex post to learn the success probability of their projects, and impose capital adequacy requirements. Capital requirements combat moral hazard when the regulator has a… CONTINUE READING