Cyclical Effects of Bank Capital Requirements with Imperfect Credit Markets

Pierre Richard Agénor, Luiz A. Pereira Da Silva

Research output: Contribution to journalArticlepeer-review


This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself depending on collateral. Basel I- and Basel II-type regulatory regimes are defined and a capital channel is introduced through a signaling effect of capital buffers. The macroeconomic effects of a negative supply shock are analyzed, under both binding and nonbinding capital requirements. Factors affecting the procyclicality of each regime (defined in terms of the behavior of the risk premium) are also identified. © 2010.
Original languageEnglish
Pages (from-to)43-56
Number of pages13
JournalJournal of Financial Stability
Issue number1
Publication statusPublished - Jan 2012


  • Bank capital regulatory regimes
  • Capital buffers
  • Procyclicality of financial system


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