Supply Shocks and the Cyclical Behaviour of Bank Lending Rates under the Basel Accords

Roy Zilberman

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: This paper examines the cyclical e¤ects of bank capital requirements in a simple macro model with credit market frictions. A bank capital channel is introduced through a monitoring incentive effect of bank capital buffers on the repayment probability and hence the loan rate. We also identify a collateral channel, which mitigates moral hazard behaviour by firms, and therefore raises their repayment probability. Basel I and Basel II regulatory regimes are then defined, with a distinction made between the Standardized and Foundation Internal Ratings Based (IRB) approaches of Basel II. We analyze the role of the bank capital and collateral channels in the transmission of supply shocks, and show that depending on the strength of these channels, the loan rate can either amplify or mitigate the e¤ects of the shock. Finally, the relative impact of the two channels also determines which of the regulatory regimes is most procyclical.

Pages: 41 pages
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cta and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hummedia.manchester.ac.uk/schools/soss/cgb ... apers/dpcgbcr161.pdf (application/pdf)

Related works:
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:man:cgbcrp:161

Access Statistics for this paper

More papers in Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Patrick Macnamara ().