This thesis proposes a framework for efficiency gain from bank acquisition of borrower soft information under capital regulation. The lending function of the bank creates an explicit credit risk captured by borrower soft information and the necessity to model the bank’s equity as a capped call option. We show that an increase in the favorable soft information decreases the bank’s interest margin and equity risk, and increases the efficiency gain from soft information acquisition. Soft information acquisition contributes to the stability of the banking system. As the capital-to-deposits ratio increases, the bank interest margin is decreased, the equity risk is increased, and the efficiency gain is decreased. Capital regulation as such discourages soft information acquisition and adversely affects the banking stability.