Bank Pricing and Risk-Adjusted Capital Requirements

Abstract

This paper develops a methodology for analysing the impact of the risk-weighting approach to bank capital adequacy upon bank pricing. The approach, based on a capital-budgeting framework, considers how the risk weights constrain bank leverage and the likely effects upon bank funding costs. The approach is used to examine the validity of several commonly held views about the likely impacts of risk-adjusted capital requirements. © 1990, SAGE Publications. All rights reserved.