Cyclical Effects of Bank Capital Requirements with Imperfect Credit Markets

Pierre Richard Agénor; Luiz A. Pereira Da Silva

doi:10.1016/j.jfs.2010.07.002

Cyclical Effects of Bank Capital Requirements with Imperfect Credit Markets

Pierre Richard Agénor, Luiz A. Pereira Da Silva

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

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 language	English
Pages (from-to)	43-56
Number of pages	13
Journal	Journal of Financial Stability
Volume	8
Issue number	1
DOIs	https://doi.org/10.1016/j.jfs.2010.07.002
Publication status	Published - Jan 2012

Keywords

Bank capital regulatory regimes
Capital buffers
Procyclicality of financial system

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.jfs.2010.07.002

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abstract = "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. {\textcopyright} 2010.",

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AB - 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.

KW - Bank capital regulatory regimes

KW - Capital buffers

KW - Procyclicality of financial system

U2 - 10.1016/j.jfs.2010.07.002

DO - 10.1016/j.jfs.2010.07.002

M3 - Article

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EP - 56

JO - Journal of Financial Stability

JF - Journal of Financial Stability

IS - 1

ER -

Cyclical Effects of Bank Capital Requirements with Imperfect Credit Markets

Abstract

Keywords

UN SDGs

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