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Implications of Bank Regulation for Credit Intermediation and Bank Stability: A Dynamic Perspective

Monika Bucher (), Diemo Dietrich and Achim Hauck ()

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: Business cycles imply liquidity risks for banks. This paper explores how these risks influence bank lending over the cycle. With forward-looking banks, lending cycles, credit booms and busts, or suppressed and highly fragile bank systems can emerge, depending on the magnitude of liquidity risks. In this context, regulatory stability-enhancing measures have some unpleasant effects on bank lending. Imposing countercyclical capital adequacy ratio may amplify procyclicality or result in disintermediation, when liquidity risks are only moderate and financial stability is barely a threat. Adopting a regulatory margin call eliminates failures but stops lending for larger liquidity risks whereas a liquidity ratio might be a way to reduce risk-taking without fully hampering credit intermediation.

JEL-codes: G28 G21 E32 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-rmg
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Related works:
Working Paper: Implications of bank regulation for loan supply and bank stability: A dynamic perspective (2018) Downloads
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