01738cas a2200253 a 4500 AALejournalIMF007220 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455259359 1018-5941 BD-DhAAL BD-DhAAL Benes, Jaromir. Risky Bank Lending and Optimal Capital Adequacy Regulation / Jaromir Benes, Michael Kumhof. Washington, D.C. : International Monetary Fund, 2011. 1 online resource (27 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We study the welfare properties of a New Keynesian monetary economy with an essential role for risky bank lending. Banks lend funds deposited by households to a financial accelerator sector, and face penalties for maintaining insufficient net worth. The loan contract specifies an unconditional lending rate, which implies that banks can make loan losses. Their main response is to raise lending rates to rebuild net worth. Prudential rules that adjust minimum capital adequacy requirements in response to loan losses significantly increase welfare. But the gains from eliminating limited liability and moral hazard would be an order of magnitude larger. Mode of access: Internet Kumhof, Michael. IMF Working Papers; Working Paper ; No. 2011/130 Full text available on IMF http://elibrary.imf.org/view/journals/001/2011/130/001.2011.issue-130-en.xml IMF e-Library