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Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking

Gianni De Nicolo, Andrea Gamba and Marcella Lucchetta ()

No 12/72, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the impact of bank regulation and taxation in a dynamic model with banks exposed to credit and liquidity risk. We find an inverted U-shaped relationship between capital requirements and bank lending, efficiency, and welfare, with their benefits turning into costs beyond a certain requirement threshold. By contrast, liquidity requirements reduce lending, efficiency and welfare significantly. The costs of high capital and liquidity requirements represent a lower bound on the benefits of these regulations in abating systemic risks. On taxation, corporate income taxes generate higher government revenues and entail lower efficiency and welfare costs than taxes on non-deposit liabilities.

Keywords: Economic models; Capital; Bank regulations; Credit risk; Liquidity; Taxation; Bank Regulation, Dynamic Banking Model, capital regulation, banking, capital requirement, bank capital, deposit insurance, Financial Institutions and Services: Government Policy and Regulation, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba and nep-reg
Date: 2012-03-01
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Related works:
Working Paper: Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking (2012) Downloads
Working Paper: Capital regulation, liquidity requirements and taxation in a dynamic model of banking (2012) Downloads
Working Paper: Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking (2011) Downloads
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