Cyclical effects of bank capital requirements with imperfect credit markets

Pierre-Richard Agénor and Luiz Awazu Pereira da Silva ()

Journal of Financial Stability, 2012, vol. 8, issue 1, 43-56

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.

Keywords: Procyclicality of financial system; Bank capital regulatory regimes; Capital buffers (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Cyclical Effects of Bank Capital Requirements with Imperfect Credit Markets (2011)
Working Paper: Cyclical effects of bank capital requirements with imperfect credit markets (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:8:y:2012:i:1:p:43-56

DOI: 10.1016/j.jfs.2010.07.002

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