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Bank’s choice of loan portfolio under high regulation – example of Croatia

Neven Vidaković ; Effectus - studij financija i prava

Sažetak

This paper creates a mathematical model in which the banks are faced with two optimization
problems. The first optimization problem is how to optimize their behavior in
order to maximize profits. The second optimization is how to optimize the structure of
liabilities in order to have minimum regulation. The regulatory regime is imposed by the
central bank. This paper investigates the behavior of banks when faced with high regulation
and provides a theoretical framework for analysis of the impact of high regulation on
the choice of the bank’s portfolio structure. The model shows the banks have a learning
framework in which the banks learn the central bank’s true model and adjust their credit
policies to existing regulatory regime. However this adjustment also creates changes in the
choice of credit.

Ključne riječi

credit; central bank regulation; dynamic programming; bayesian learning

Hrčak ID:

161637

URI

https://hrcak.srce.hr/161637

Datum izdavanja:

8.12.2014.

Posjeta: 892 *