Reputation, risk-taking and macroprudential policy
AbstractThis paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. Unprofitable banks have strong incentives to invest in risky assets and generate inefficient credit booms when macroeconomic fundamentals are good in order to signal high ability. We show that across-the-system countercyclical capital requirements that deter credit booms are constrained optimal when fundamentals are within an intermediate range. We also show that when fundamentals are deteriorating, a public announcement of that fact can itself play a powerful role in preventing inefficient credit booms, providing an additional channel through which macroprudential policies can improve outcomes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 462.
Length: 40 pages
Date of creation: 07 Oct 2012
Date of revision:
Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
Macroprudential policy; credit booms; bank capital regulation;
Find related papers by JEL classification:
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-BAN-2012-10-13 (Banking)
- NEP-CBA-2012-10-13 (Central Banking)
- NEP-CTA-2012-10-13 (Contract Theory & Applications)
- NEP-MAC-2012-10-13 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Misa Tanaka & Glenn Hoggarth, 2006. "Resolving banking crises - an analysis of policy options," Bank of England working papers, Bank of England 293, Bank of England.
- Frederick T. Furlong & Michael C. Keeley, 1991. "Capital regulation and bank risk-taking: a note (reprinted from Journal of Banking and Finance)," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Sum, pages 34-39.
- Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(1), pages 17-34, January.
- Javier Bianchi, 2010. "Credit Externalities: Macroeconomic Effects and Policy Implications," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 398-402, May.
- Mehmet Fatih Ekinci & Gazi Kabas & Enes Sunel, 2013.
"End-Point Bias in Trend-Cycle Decompositions: An Application to the Real Exchange Rates of Turkey,"
Central Bank Review,
Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(3), pages 61-71.
- M. Fatih Ekinci & Gazi Kabas & Enes Sunel, 2013. "End-Point Bias in Trend-Cycle Decompositions : An Application to the Real Exchange Rates of Turkey," Working Papers 1316, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Christoph Aymanns & J. Doyne Farmer, 2014. "The dynamics of the leverage cycle," Papers 1407.5305, arXiv.org, revised Aug 2014.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.