The Political Economy of the European Banking Union
The Political Economy of the European Banking Union ...
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IWH-CompNet Discussion Papers
IWH-CompNet Discussion Papers The IWH-CompNet Discussion Paper series presents research...
Joint Economic Forecast
Joint Economic Forecast The joint economic forecast is an instrument for evaluating...
Population and labour market
Population and labour market Inhabitants are all people (Germans and foreigners) with permanent residence in federal territory (or in a Land). That does not include ...
Stock of fixed assets
Stock of fixed assets Gross fixed capital formation Gross fixed capital formation includes the purchase of permanent and reproducible fixed assets as well as created...
Macro data interactive
Macro data interactive This service provides time series from official publications (Statistisches Bundesamt (German Federal Statistical Office), Arbeitskreis...
Basel III Capital Requirements and Heterogeneous Banks
IWH Discussion Papers,
I develop a theoretical model to investigate the effect of simultaneous regulation with a leverage ratio and a risk-weighted ratio on banks‘ risk taking and banking market structure. I extend a portfolio choice model by adding heterogeneity in productivity among banks. Regulators face a trade-off between the efficient allocation of resources and financial stability. In an oligopolistic market, risk-weighted requirements incentivise banks with high productivity to lend to low-risk firms. When a leverage ratio is introduced, these banks lose market shares to less productive competitors and react with risk-shifting into high-risk loans. While average productivity in the low-risk market falls, market shares in the high-risk market are dispersed across new entrants with high as well as low productivity.