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A model of bank capital, lending and the macroeconomy: Basel I versus Basel II

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Lea Zicchino

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Abstract

The revised framework for capital regulation of internationally active banks (known as Basel II) introduces risk-based capital requirements. This paper analyses the relationship between bank capital, lending and macroeconomic activity under the new capital adequacy regime. It extends a model of the bank-capital channel of monetary policy - developed by Chami and Cosimano - by introducing capital constraints . la Basel II. The results suggest that bank capital is likely to be less variable under the new capital adequacy regime than under the current one, which is characterised by invariant asset risk-weights. However, bank lending is likely to be more responsive to macroeconomic shocks.

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Paper provided by Bank of England in its series Bank of England working papers with number 270.

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Handle: RePEc:boe:boeewp:270

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  1. Pamela Nickell & William Perraudin & Simone Varotto, . "Ratings versus equity-based credit risk modelling: an empirical analysis," Bank of England working papers 132, Bank of England. [Downloadable!]
  2. Chen, Nan-Kuang, 2001. "Bank net worth, asset prices and economic activity," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 415-436, October. [Downloadable!] (restricted)
  3. Dimitrios P Tsomocos, . "Equilibrium analysis, banking, contagion and financial fragility," Bank of England working papers 175, Bank of England. [Downloadable!]
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  4. Eva Catarineu-Rabell & Patricia Jackson & Dimitrios Tsomocos, 2005. "Procyclicality and the new Basel Accord - banks’ choice of loan rating system," Economic Theory, Springer, vol. 26(3), pages 537-557, October. [Downloadable!] (restricted)
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  5. Robert R. Bliss & George G. Kaufman, 2002. "Bank procyclicality, credit crunches, and asymmetric monetary policy effects: a unifying model," Working Paper Series WP-02-18, Federal Reserve Bank of Chicago. [Downloadable!]
  6. Skander J. Van den Heuvel, 2002. "Does bank capital matter for monetary transmission?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 259-265. [Downloadable!]
  7. Anil Kashyap & Jeremy C. Stein, 2004. "Cyclical implications of the Basel II capital standards," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 18-31. [Downloadable!]
  8. Joseph G. Haubrich & Paul Wachtel, 1993. "Capital requirements and shifts in commercial bank portfolios," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 2-15. [Downloadable!]
  9. Skander Van den Heuvel, 2006. "The Bank Capital Channel of Monetary Policy," 2006 Meeting Papers 512, Society for Economic Dynamics. [Downloadable!]
  10. Ralph Chami & Thomas F. Cosimano, 2001. "Monetary Policy with a Touch of Basel," IMF Working Papers 01/151, International Monetary Fund. [Downloadable!]
  11. Hancock, Diana & Laing, Andrew J. & Wilcox, James A., 1995. "Bank capital shocks: Dynamic effects on securities, loans, and capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 661-677, June. [Downloadable!] (restricted)
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  1. David VanHoose, 2008. "Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(1), pages 1-14, March. [Downloadable!] (restricted)
  2. Glenn Hoggarth & Steffen Sorensen & Lea Zicchino, . "Stress tests of UK banks using a VAR approach," Bank of England working papers 282, Bank of England. [Downloadable!]
  3. Ines Drumond & José Jorge, 2009. "Basel II Capital Requirements, Firms' Heterogeneity, and the Business Cycle," FEP Working Papers 307, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  4. Inês Drumond, 2008. "Bank Capital Requirements, Business Cycle Fluctuations and the Basel Accords: A Synthesis," FEP Working Papers 277, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  5. Agenor, Pierre-Richard & Pereira da Silva, Luiz A., 2009. "Cyclical effects of bank capital requirements with imperfect credit markets," Policy Research Working Paper Series 5067, The World Bank. [Downloadable!]
  6. Vincent Bouvatier & Laetitia Lepetit, 2006. "Banks'procyclicality behavior : does provisioning matter ?," Cahiers de la Maison des Sciences Economiques bla06035, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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