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Following implementation of the 1988 Basel Accord, U.S. banks altered their balance sheets in a variety of different ways including reallocating assets, reducing lending, and increasing capital. While much of the existing empirical research recognizes that fact, it fails to answer the question of why. In the context of a profit-maximization model that recognizes both non-homogeneous adjustment costs and errors in risk weights, this paper examines the question of why different banks exhibiteddoaj:e736a562d2c04c9daa6cc340d0778b5c fatcat:dobxqi4u2rajrarvb7dgrcykgu