Arbeitspapier
The state-dependent impact of changes in bank capital requirements
Based on a non-linear equilibrium model of the banking sector with an occasionally-binding equity issuance constraint, we show that the economic impact of changes in bank capital requirements depends on the state of the macro-financial environment. In "normal" states where banks do not face problems to retain enough profits to satisfy higher capital requirements, the impact on bank loan supply works through a "pricing channel" which is small: around 0.1% less loans for a 1pp increase in capital requirements. In "bad" states where banks are not able to come up with sufficient equity to satisfy capital requirements, the impact on loan supply works through a "quantity channel", which acts like a financial accelerator and can be very large: up to 10% more loans for a capital requirement release of 1pp. Compared to existing DSGE models with a banking sector, which usually feature a constant lending response of around 1%, our state-dependent impact is an order of magnitude lower in "normal" states and an order of magnitude higher in "bad" states. Our results provide a theoretical justification for building up a positive countercyclical capital buffer in "normal" macro-financial environments.
- ISBN
-
978-92-899-6113-4
- Sprache
-
Englisch
- Erschienen in
-
Series: ECB Working Paper ; No. 2828
- Klassifikation
-
Wirtschaft
Firm Behavior: Theory
Financial Markets and the Macroeconomy
Money Supply; Credit; Money Multipliers
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
- Thema
-
Bank capital requirements
loan supply
dynamic stochastic equilibrium model
financial accelerator
global solution methods
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Lang, Jan Hannes
Menno, Dominik
- Ereignis
-
Veröffentlichung
- (wer)
-
European Central Bank (ECB)
- (wo)
-
Frankfurt a. M.
- (wann)
-
2023
- DOI
-
doi:10.2866/301976
- Handle
- Letzte Aktualisierung
- 10.03.2025, 11:41 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Lang, Jan Hannes
- Menno, Dominik
- European Central Bank (ECB)
Entstanden
- 2023
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