Macroeconomic effects of bank capital regulation

Sandra Eickmeier, Benedikt Kolb and Esteban Prieto ()

No 44/2018, Discussion Papers from Deutsche Bundesbank

Abstract: Bank capital regulations are intended to enhance financial stability in the long run, but may, in the meanwhile, involve costs for the real economy. To examine these costs we propose a narrative index of aggregate tightenings in regulatory US bank capital requirements from 1979 to 2008. Anticipation effects are explicitly taken into account and found to matter. In response to a tightening in capital requirements, banks temporarily reduce business and real estate lending, which temporarily lowers investment, consumption, housing activity and production. A decline in financial and macroeconomic risk helps sustain spending in the medium run. Monetary policy also cushions negative effects of capital requirement tightenings on the economy.

Keywords: Narrative Approach; Bank Capital Requirements; Local Projections (search for similar items in EconPapers)
JEL-codes: C32 E44 G18 G28 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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https://www.econstor.eu/bitstream/10419/188885/1/1041824548.pdf (application/pdf)

Related works:
Working Paper: The macroeconomic effects of bank capital regulation (2023)
Working Paper: The macroeconomic effects of bank capital requirement tightenings: Evidence from a narrative approach (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:442018

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