What makes a bank risky? Insights from the optimal capital structure of banks

Contingent convertibles. Solving or seeding the next banking crisis?

“…Given that the capital structure could be arbitrarily adjusted at no costs, a default could be prevented in our model (see e.g. Koziol and Lawrenz, 2009). A typical approach within this model class from the corporate finance literature (see e.g.…”

Capital-based regulation, portfolio risk and capital determination: Empirical evidence from the US property–liability insurers

“…Koziol and Lawrenz (2009) show that a standard capitalweighted regulation system is effective to discipline banks in terms of taking excessive leverage and to reduce the danger of a default. Some banking literature states that capital regulation is motivated by the need to avoid the risk shifting incentives generated by improperly priced deposit insurance, since an unregulated bank may take excessive portfolio and leverage risks in order to maximize its shareholder value at the expense of the deposit insurance (e.g., Furlong and Keeley,1989).…”

“…The presence of capital market frictions such as adjustment costs may not allow insurance companies to quickly adjust their capital to desirable level when they diverge from long-run target equilibrium (Gron, 1994). The capital buffer theory argues that financial firms have an incentive to hold a ''buffer" of excess capital above the regulatory minimum since a violation of the capital requirement constraint triggers regulatory costs (e.g., Lindquist, 2004;Koziol and Lawrenz, 2009). Jokipii and Milne (2008) find that European banks hold more capital than that required by the regulators for the years 1997-2004.…”

Irish credit unions: Investigating performance determinants and the opportunity cost of regulatory compliance

“…Koziola and Lawrenz (2009) note that the risk of bank failures is the paramount concern of bank regulation whileKanagaretnama et al (2009) examine how auditor reputation conditions the market value of banks' loan loss provision.…”