Bank capital in the short and in the long run

Caterina Mendicino, Kalin Nikolov, Javier Suarez and Dominik Supera

No 2286, Working Paper Series from European Central Bank

Abstract: How far should capital requirements be raised in order to ensure a strong and resilient banking system without imposing undue costs on the real economy? Capital requirement increases make banks safer and are beneficial in the long run but also entail transition costs because their imposition reduces credit supply and aggregate demand on impact. In the baseline scenario of a quantitative macro-banking model, 25% of the long-run welfare gains are lost due to transitional costs. The strength of monetary policy accommodation and the degree of bank riskiness are key determinants of the trade-off between the short-run costs and long-run benefits from changes in capital requirements. JEL Classification: E3, E44, G01, G21

Keywords: default risk; effective lower bound; macroprudential policy; transitional dynamics (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg and nep-mac
Note: 1774743
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2286~46cbe42aeb.en.pdf (application/pdf)

Related works:
Journal Article: Bank capital in the short and in the long run (2020)
Working Paper: Bank Capital in the Short and in the Long Run (2018)
Working Paper: Bank Capital in the Short and in the Long Run (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192286

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().