Macroeconomic effects of bank capital regulation

Arbeitspapier

Bank capital regulations are intended to enhance financial stability in the long run, but may, in the meanwhile, involve costs for the real economy. To examine these costs we propose a narrative index of aggregate tightenings in regulatory US bank capital requirements from 1979 to 2008. Anticipation effects are explicitly taken into account and found to matter. In response to a tightening in capital requirements, banks temporarily reduce business and real estate lending, which temporarily lowers investment, consumption, housing activity and production. A decline in financial and macroeconomic risk helps sustain spending in the medium run. Monetary policy also cushions negative effects of capital requirement tightenings on the economy.

Object Details

• ISBN: 978-3-95729-517-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 44/2018

Classification and Topics

• Classification: Wirtschaft ; Financial Institutions and Services: Government Policy and Regulation ; General Financial Markets: Government Policy and Regulation ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Financial Markets and the Macroeconomy
• Subject: Narrative Approach ; Bank Capital Requirements ; Local Projections

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eickmeier, Sandra ; Kolb, Benedikt ; Prieto, Esteban
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/188885
• Last update: 10.03.2025, 11:41 AM CET