Emilio Barucci, “Does a countercyclical buffer affect bank management?”

Monday October 7  2013
Scuola Normale Superiore
Aula Bianchi

Emilio Barucci
Politecnico di Milano


We analyze the effect of the countercyclical capital buffer, as provided by the Basel III regulation, on bank management.
The goal of the regualtion is to reduce bank leverage and excess risk taking.
We show that the countercyclical buffer increases the incentive for equity holders to take excess risk investing in assets with high drift rate independently of their volatility. Therefore, the buffer induces risk-shifting incentives, however it is effective in reducing the bank size and its leverage but the magnitudo is rather small.

Joint work with Luca Del Viva, ESADE Business School