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    Please use this identifier to cite or link to this item: http://tkuir.lib.tku.edu.tw:8080/dspace/handle/987654321/79687

    Title: Risk and Regret Aversions on Optimal Bank Interest Margin under Capital Regulation
    Authors: Tsai, Jeng-Yan
    Contributors: 淡江大學國際企業學系
    Keywords: Interest margin;Capital regulation;Regret aversion;Risk aversion
    Date: 2012-11
    Issue Date: 2013-01-08 22:48:13 (UTC+8)
    Publisher: Amsterdam: Elsevier BV * North-Holland
    Abstract: This paper examines the bank's optimal loan rate (and thus the bank's interest margin) under more stringent capital regulation when the bank is not only risk-averse but also regret-averse. Risk-averse preferences are characterized by an option-based utility function that includes disutility from the dislike of bank equity risk. Regret-averse preferences feature an option-based utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that an increase in bank capital requirement results in an increased margin under risk aversion dominating regret aversion, whereas it results in a reduced margin under regret aversion dominating risk aversion. The former holds when risk aversion domination stems from increasing risk-averse preference, but not from decreasing regret-averse preference, while the latter holds when regret aversion domination results from either decreasing risk-averse or increasing regret-averse preference. Risk aversion, as such, makes the bank more prudent and less prone to risk-taking, while regret aversion, as such, makes the bank less prudent and more prone to risk-taking.
    Relation: Economic Modelling 29(6), pp.2190–2197
    DOI: 10.1016/j.econmod.2012.06.028
    Appears in Collections:[Graduate Institute & Department of International Business] Journal Article

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