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

Gianni De Nicolo, Andrea Gamba and Marcella Lucchetta

No 2012/072, 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: WP; fire sale; coverage ratio; equity capital; Bank Regulation; Taxation; Dynamic Banking Model; bank efficiency; maturity transformation; unregulated bank; cash flow; enterprise value; earnings before taxes; capital requirement; bank shareholder; bank default; restructured bank; bank regulation reform; Liquidity requirements; Capital adequacy requirements; Loans; Stocks (search for similar items in EconPapers)
Pages: 53
Date: 2012-03-01
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Citations: View citations in EconPapers (42)

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Related works:
Working Paper: Capital regulation, liquidity requirements and taxation in a dynamic model of banking (2012)
Working Paper: Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking (2011)
Working Paper: Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking (2011)
Working Paper: Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking (2011)
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