Technical Report Rollover and Capital Adequacy Requirements

YASUDA, Yukihiro

2016-05 , Hitotsubashi University Center for Financial Research
This paper shows theoretically that if bank supervision is weak, capital adequacy requirements provide an incentive for troubled banks with their non-performing loans to refinance their client distressed firms, even those with poor prospects. We also argue that in some cases rollover is desirable because the bank can resolve the debt overhang problem of its clients. Therefore, results such as these indicate that loan rollovers need to be assessed more carefully.

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