Bank capital buffers in a dynamic model

Jochen Mankart, Alexander Michaelides and Spyros Pagratis

No 51/2018, Discussion Papers from Deutsche Bundesbank

Abstract: We estimate a dynamic structural banking model to examine the interaction between risk-weighted capital adequacy and unweighted leverage requirements, their differential impact on bank lending, and equity buffer accumulation in excess of regulatory minima. Tighter risk-weighted capital requirements reduce loan supply and lead to an endogenous fall in bank profitability, reducing bank incentives to accumulate equity buffers and, therefore, increasing the incidence of bank failure. Tighter leverage requirements, on the other hand, increase lending, preserve bank charter value and incentives to accumulate equity buffers, therefore leading to lower bank failure rates.

Keywords: Banking; Equity Buffers; Regulatory Interactions (search for similar items in EconPapers)
JEL-codes: E44 G21 G38 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Bank capital buffers in a dynamic model (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:512018

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