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The Role of Capital in Financial Institutions

By Allen N. Berger
Richard J. Herring
& Giorgio P. Szegö

Wharton Financial Institutions Center
January 1995

Abstract: This article examines the role of capital in financial institutions - why it is important, how market-generated capital 'requirements' differ from regulatory requirements, and the form that regulatory requirements should take. Along the way, we examine historical trends in bank capital, problems in measuring capital, and some possible unintended consequences of capital requirements. Within this framework, we evaluate how the contributors to the special issue of the same title (JBF, April 1995) advance the literature and suggest topics for future research.

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