Bank capital shortfall in the euro area

Eric Jondeau and Jean-Guillaume Sahuc

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Abstract: We quantify the bank capital shortfall that results from a financial crisis by estimating a macro-finance dynamic stochastic general equilibrium model that captures the interactions between the financial and real sectors of the euro-area economy. The introduction of both deposit and shadow banks captures several characteristics of the banking system and reveals a financial amplification mechanism. By using a combination of a large positive risk shock and a large negative investment shock, we show that a crisis similar to that observed in 2008 would generate a bank capital shortfall between 2.2% and 3% of euro-area GDP, which corresponds to approximately 207–282 billion euros.

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Date: 2022
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Published in Journal of Financial Stability, 2022, 62

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03771767

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