Bank capital, liquidity and systemic risk

Jürgen Eichberger and Martin Summer

No 04-45, Papers from Sonderforschungsbreich 504

Abstract: We analyze the impact of capital adequacy regulation on bank insolvency and aggregate investment. We develop a model of the banking system that is characterized by the interaction of many heterogeneous banks with the real sector, interbank credit relations as a consequence of bank liquidity management and an insolvency mechanism. This allows us to study the impact of capital adequacy regulation on systemic risk. In particular we can analyze the impact of regulation on contagious defaults arising from mutual credit relations. We show that the impact of capital adequacy on systemic stability is ambiguous and that systemic risk might actually increase as a consequence of imposing capital constraints on banks. Furthermore we analyze the indirect consequences of capital adequacy regulation that are transmitted to the real economy by their impact on equilibrium interbank rates and thus the opportunity costs of liquidity within the banking system.

JEL-codes: E44 G21 G28 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
https://madoc.bib.uni-mannheim.de/2697/1/dp04_45.pdf

Related works:
Journal Article: Bank Capital, Liquidity, and Systemic Risk (2005)
Working Paper: Bank Capital, Liquidity and Systemic Risk (2004)
Working Paper: Bank Capital, Liquidity and Systemic Risk (2004)
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:mnh:spaper:2697

Access Statistics for this paper

More papers in Papers from Sonderforschungsbreich 504 Contact information at EDIRC.
Bibliographic data for series maintained by Katharina Rautenberg (katharina.rautenberg@bib.uni-mannheim.de).