 Measuring the impact of prudential policy on the macroeconomy: A practical application to Basel III and other responses to the financial crisisSebastian de-Ramon, Zanna Iscenko, Matthew Osborne, Michael Straughan and Peter Andrews MPRA Paper from University Library of Munich, Germany Abstract: When financial regulators require banks to hold a higher ratio of equity capital to debt funding, banks incur short-term costs as they adjust their balance sheets and lose some of the advantages associated with their existing funding mix. They then seek to maintain post-tax income by, for example, raising lending margins. Higher lending margins tend to lower the volumes of borrowing. This creates a trade-off between the greater stability associated with a higher ratio of equity capital to debt funding and the level of economic activity in the short to medium term. While the benefits of greater stability are obviously very large, and the reduction in economic activity is very unlikely to be on a comparable scale, exploring the trade-off is not straightforward. Past work on this did not solve all of the modelling problems, nor does this paper. We do, however, report some useful developments, which may assist in calibrating policy or monitoring the impacts of judgements already made. Keywords: banking; capital requirements; impact assessment; macroeconomic impact (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:69423 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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