Is Basel III counter-cyclical: The case of South Africa?
Guangling Liu () and
Thabang Molise ()
Additional contact information
Guangling Liu: Department of Economics, University of Stellenbosch
Thabang Molise: Department of Economics, University of Stellenbosch
No 10/2018, Working Papers from Stellenbosch University, Department of Economics
This paper develops a dynamic general equilibrium model with banking and a macroprudential authority, and studies the extent to which the Basel III bank capital regulation promotes financial and macroeconomic stability in the context of South African economy. The decomposition analysis of the transition from Basel II to Basel III suggests that it is the counter-cyclical capital buffer that effectively mitigates the pro-cyclicality of its predecessor, while the impact of the conservative buffer is marginal. Basel III has a pronounced impact on the financial sector compared to the real sector and is more effective in mitigating fluctuations in financial and business cycles when the economy is hit by financial shocks. In contrast to the credit-to-GDP ratio, the optimal policy analysis suggests that the regulatory authority should adjust capital requirement to changes in credit and output when implementing the counter-cyclical buffer.
Keywords: Bank capital regulations; Financial stability; Counter-cyclical capital buffer; DSGE (search for similar items in EconPapers)
JEL-codes: E44 E47 E58 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.ekon.sun.ac.za/wpapers/2018/wp102018/wp102018.pdf First version, 2018 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:sza:wpaper:wpapers303
Access Statistics for this paper
More papers in Working Papers from Stellenbosch University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Melt van Schoor ().