Reputation, risk-taking and macroprudential policy

David Aikman (), Benjamin Nelson and Misa Tanaka

No 462, Bank of England working papers from Bank of England

Abstract: This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. Unprofitable banks have strong incentives to invest in risky assets and generate inefficient credit booms when macroeconomic fundamentals are good in order to signal high ability. We show that across-the-system countercyclical capital requirements that deter credit booms are constrained optimal when fundamentals are within an intermediate range. We also show that when fundamentals are deteriorating, a public announcement of that fact can itself play a powerful role in preventing inefficient credit booms, providing an additional channel through which macroprudential policies can improve outcomes.

Keywords: Macroprudential policy; credit booms; bank capital regulation (search for similar items in EconPapers)
JEL-codes: E60 G10 G38 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-10-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cta and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... rudential-policy.pdf Full text (application/pdf)

Related works:
Journal Article: Reputation, risk-taking, and macroprudential policy (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0462

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().