Cyclical implications of minimum capital requirements

Arbeitspapier

Capital requirements play a key role in the supervision and regulation of banks. The Basel Committee on Banking Supervision is now changing the current framework by introducing risk-sensitive capital charges. There have been concerns that this will unduly increase volatility in the banks' capital. Furthermore, when the credit supply is rationed, capital requirements may exacerbate an economic downturn. We examine the problem of cyclicality in a macroeconomic model which explicitly takes regulatory constraints into account. We find that the capital buffer which banks hold on top of the required minimum plays a crucial role in mitigating the volatility in capital requirements. Therefore, despite the fact that capital charges may vary significantly over time, the effects on the macroeconomy will be moderate.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 2 ; No. 2005,06

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Markets and the Macroeconomy
• Subject: minimum capital requirements ; regulatory capital ; economic capital ; capital buffer ; pro-cyclicality ; business cycle ; bank lending channel ; Eigenkapitalvorschriften ; Wirtschaftspolitische Wirkungsanalyse ; Bankbilanz ; Makroökonomischer Einfluß ; Theorie ; Konjunktur

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Heid, Frank
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/19739
• Last update: 10.03.2025, 11:46 AM CET