Bank capital shortfall in the euro area

Eric Jondeau and Jean-Guillaume Sahuc

Journal of Financial Stability, 2022, vol. 62, issue C

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.

Keywords: Capital shortfall; Systemic risk; Leverage; Financial system; Euro area; DSGE model (search for similar items in EconPapers)
JEL-codes: E32 E44 G01 G21 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:62:y:2022:i:c:s1572308922000912

DOI: 10.1016/j.jfs.2022.101070

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