Roberto Robatto (Wisconsin-Madison)

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Roberto Robatto

Finance

A seminar by Roberto Robatto from the University of Wisconsin-Madison

Title: The Effects of Capital Requirements on Good and Bad Risk-Taking

Abstract: We study optimal capital requirement regulation in a dynamic quantitative model in which deposits are held by firms for precautionary reasons and facilitate their acquisition of production inputs. We identify a novel general equilibrium effect that drives a wedge between the private value of deposits (i.e., the value to a price-taking firm, measured by the deposit premium) and the social value of deposits (i.e., the value that matters for regulation). The wedge reduces the social value of deposits, and as a result, the optimal capital requirement is substantially higher than in comparable models in the literature. We find that the optimal capital requirement is 20.6%, and a regulator that ignores our novel channel would instead choose a 16% capital requirement.

Start date:

11am Friday, 14 Jun 2019

End date:

12.30pm Friday, 14 Jun 2019

Venue:

CBE LT2

Presenter(s):

Roberto Robatto

Updated:   7 June 2019 / Responsible Officer:  CBE Communications and Outreach / Page Contact:  College Web Team