This paper proposes a model to analyze an incentive compatible regulation of capital adequacy requirement ratio and a risk-based deposit insurance premium for banks in a competitive financial market where information asymmetry resides. In this paper, there will be an examination of the effects of the change of allotment rules of the remaining assets of insolvent banks to depositors, creditors and shareholders on national tax revenue, stock value of banks, and an incentive compatible regulation. The results from our analysis are as follows: First, the incentive compatible combination of regulation was identified to be present in both PRS (the pro-rata sharing) and IDP (insured deposit preference) rules. The request demanding the gradually increasing capital adequacy requirement ratio of banks was revealed by following the order of highly probable successful loan portfolios from the baseline of mandatory minimum capital adequacy requirement ratio. Second, in the case of an institutional change from a PRS rule to an IDP rule where there exist an incentive compatible regulation, the average risk of a bank loan was found to be increasing along with the expansion of loans out to bad enterprises with high credit risk, such as small- and medium-sized corporations. Third, it was found that there could not be a consistent determination of the stock price of the overall banking business and the fluctuation of governmental tax revenue. However, through the numerical example analysis, it was identified that the stock value of banks would be decreased by the diminished used of marketable debt financing resulting from the increase of capital adequacy requirement ratio imposed on the banks realized by the institutional transition.
저자
Suk Heun Yoon [ Professor, Dept. of Finance, Soongsil University ]
The 1st author
Rae Soo Park [ Professor, Dept. of Business Administration, Sookmyung Women’s University ]
Corresponding author
