Return on Investment on Artificial Intelligence: the Case of Bank Capital Requirement

I study economies where banks do not fully internalize the social costs of their lending decisions, which leads to real overinvestment. The bank capital requirement that restores investment efficiency varies over time. During booms, more investment is desirable, so the banking sector must be allowed to expand. This suggests a loosening of the requirement. However, there is also more bank capital. Since the banking sector exhibits decreasing returns to scale, this suggests a tightening instead. I find that the latter effect, which I dub the “bank capital channel,” dominates: the optimal capital requirement is tighter during booms than in recessions. (JEL E32, E44, G21, G28, G32)

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Effects of Bank Capital Requirement Tightenings on Inequality

SSRN Electronic Journal ◽

10.2139/ssrn.3250501 ◽

2018 ◽

Author(s):

Sandra Eickmeier ◽

Benedikt Kolb ◽

Esteban Prieto

Keyword(s):

Capital Requirement ◽

Bank Capital ◽

Bank Capital Requirement

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Operational risk in bank governance and control: How to save capital requirement through a risk transfer strategy. Evidences from a simulated case study

Risk Governance and Control Financial Markets & Institutions ◽

10.22495/rgcv5i2c1art8 ◽

2015 ◽

Vol 5 (2) ◽

pp. 142-159 ◽

Cited By ~ 1

Author(s):

Enzo Scannella ◽

Giuseppe Blandi

Keyword(s):

Risk Management ◽

Operational Risk ◽

Capital Requirement ◽

Bank Capital ◽

Regulatory Capital ◽

Operational Risk Management ◽

Risk Transfer ◽

Loss Distribution Approach ◽

Bank Capital Requirement ◽

The Impact

Operational risk management in banking has assumed such importance during the last decade. It has become increasingly important to measure, manage, and assess the impact of operational risk in the economics of banking. The purpose of this paper is to demonstrate how an effective operational risk management provides mitigating effects on capital-at-risk in banking. The paper provides evidences that an implementation of an operational risk transfer strategy reduces bank capital requirement. The paper adopts the loss distribution approach, the Monte Carlo simulation, and copula methodologies to estimate the regulatory capital and simulate an operational risk transfer strategy in banking.

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