This paper examines the relationship between capital requirements, market power, and risk-taking in the banking sector within a dynamic model of imperfect competition in the deposit market. The model assumes that banks can invest in either a prudent or a gambling asset, with the gambling asset offering higher returns but also greater risk. The key findings are: 1. **Capital Requirements and Market Power**: For low intermediation margins (high competition), only the gambling equilibrium exists. For high margins (low competition), only the gambling equilibrium exists. For intermediate margins, both equilibria coexist. Capital requirements ensure the existence of a prudent equilibrium by reducing deposit rates without affecting franchise values, thereby reducing banks' incentives to gamble. 2. **Franchise Values**: Franchise values are influenced by transport costs, the number of banks, and the cost of capital. They do not depend on the return of the prudent asset or the capital requirement, as the negative effect of the capital requirement is offset by a reduction in deposit rates. 3. **Risk-Based Capital Requirements**: These are more effective regulatory tools compared to flat-rate capital requirements because they can ensure a prudent equilibrium at a lower cost in terms of bank capital. 4. **Deposit Interest Rate Ceilings**: These can expand the region where a prudent equilibrium exists but may not always guarantee its existence, especially if the success return of the gambling asset or the cost of capital is sufficiently high. 5. **Conclusion**: Capital requirements are effective in reducing risk-taking incentives, while deposit rate ceilings may not always work, depending on the parameters of the model. The paper provides a detailed analysis of how different regulatory tools affect the behavior of banks in a dynamic, imperfectly competitive market, offering insights into the design of effective banking regulations.This paper examines the relationship between capital requirements, market power, and risk-taking in the banking sector within a dynamic model of imperfect competition in the deposit market. The model assumes that banks can invest in either a prudent or a gambling asset, with the gambling asset offering higher returns but also greater risk. The key findings are: 1. **Capital Requirements and Market Power**: For low intermediation margins (high competition), only the gambling equilibrium exists. For high margins (low competition), only the gambling equilibrium exists. For intermediate margins, both equilibria coexist. Capital requirements ensure the existence of a prudent equilibrium by reducing deposit rates without affecting franchise values, thereby reducing banks' incentives to gamble. 2. **Franchise Values**: Franchise values are influenced by transport costs, the number of banks, and the cost of capital. They do not depend on the return of the prudent asset or the capital requirement, as the negative effect of the capital requirement is offset by a reduction in deposit rates. 3. **Risk-Based Capital Requirements**: These are more effective regulatory tools compared to flat-rate capital requirements because they can ensure a prudent equilibrium at a lower cost in terms of bank capital. 4. **Deposit Interest Rate Ceilings**: These can expand the region where a prudent equilibrium exists but may not always guarantee its existence, especially if the success return of the gambling asset or the cost of capital is sufficiently high. 5. **Conclusion**: Capital requirements are effective in reducing risk-taking incentives, while deposit rate ceilings may not always work, depending on the parameters of the model. The paper provides a detailed analysis of how different regulatory tools affect the behavior of banks in a dynamic, imperfectly competitive market, offering insights into the design of effective banking regulations.