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Banking Strategy, Credit Appraisal, and Lending DecisionsA Risk–Return Framework$
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Hrishikes Bhattacharya

Print publication date: 2011

Print ISBN-13: 9780198074106

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780198074106.001.0001

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Capital Regulation and Risk Management Strategy

Capital Regulation and Risk Management Strategy

Chapter:
(p.1) 1 Capital Regulation and Risk Management Strategy
Source:
Banking Strategy, Credit Appraisal, and Lending Decisions
Author(s):

Hrishikes Bhattacharya

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198074106.003.0001

This chapter assesses the arguments for and against capital regulation. It shows that during the post-regulation period the assets generation of US banks halved while return on assets doubled and loss on assets increased by 2.5 times over the pre-regulation period. Capital regulation, therefore, resulted in higher risk of the banking industry. To protect the interests of the banks as well as their depositors, alternative strategies based on the concept of ‘value maintenance’ are presented, which upholds that a bank remains solvent as long as the market value of its assets is equal to the market value of its deposits.

Keywords:   equity capital, return on assets, return on equity, income strategy, US banks, risk management, value maintenance, market value

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