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Basel Accord and financial intermediation: the impact of policy

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  • Martin Berka
  • Christian Zimmermann

Abstract

This paper studies loan activity in a context where banks must follow Basel Accord-type rules and acquire financing from households. Loan activity typically decreases when entrepreneurs’ investment returns decline, and we study which type of policy could revigorate an economy in a trough. We find that active monetary policy increases loan volume even when the economy is in good shape; introducing active capital requirement policy can be effective as well if it implies tightening of regulation in bad times. This is performed with an heterogeneous agent economy with occupational choice, financial intermediation and aggregate shocks to the distribution of entrepreneurial returns.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2011-042.

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Date of creation: 2011
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Handle: RePEc:fip:fedlwp:2011-042

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Keywords: Basel capital accord ; Intermediation (Finance);

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  1. Dimitrios Tsomocos & Eva Catarineu-Rabell & Patricia Jackson, 2003. "Procyclicality and the new Basel Accord–banks’ choice of loan rating system," FMG Discussion Papers dp464, Financial Markets Group.
  2. Kevin Moran & Cesaire Meh, 2004. "Bank Capital, Agency Costs, and Monetary Policy," 2004 Meeting Papers 318, Society for Economic Dynamics.
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  8. Rafael Repullo & Javier Suarez, 2012. "The Procyclical Effects Of Bank Capital Regulation," Working Papers wp2012_1202, CEMFI.
  9. Yuan, Mingwei & Zimmermann, Christian, 2004. "Credit crunch in a model of financial intermediation and occupational choice," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 637-659, December.
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  17. 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.
  18. den Haan, Wouter J. & Sumner, Steven W. & Yamashiro, Guy M., 2007. "Bank loan portfolios and the monetary transmission mechanism," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 904-924, April.
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Citations

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Cited by:
  1. Alvaro Aguiar & Inês Drumond, 2007. "Monetary Policy Amplification Effects through a Bank Capital Channel," Money Macro and Finance (MMF) Research Group Conference 2006 47, Money Macro and Finance Research Group.
  2. Bojan Markovic, 2006. "Bank capital channels in the monetary transmission mechanism," Bank of England working papers 313, Bank of England.
  3. 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.
  4. Matthew Schurin, 2012. "Optimal Fiscal Policy and the Banking Sector," Working papers 2012-40, University of Connecticut, Department of Economics, revised Jul 2013.
  5. Milcheva, Stanimira, 2013. "Cross-country effects of regulatory capital arbitrage," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5329-5345.
  6. Grégory Levieuge, 2004. "La neutralisation des mouvements et de l'impact des prix d'actifs doit-elle être du ressort de la politique monétaire ?," Revue d'Économie Financière, Programme National Persée, vol. 74(1), pages 253-284.
  7. Grégory Levieuge, 2005. "Politique monétaire et prix d'actifs," Revue de l'OFCE, Presses de Sciences-Po, vol. 93(2), pages 317-355.
  8. Mauro Napoletano & Jean-Luc Gaffard & Zakaria Babutsidze, 2012. "Agent Based Models A New Tool for Economic and Policy Analysis: A New Tool for Economic and Policy Analysis," Sciences Po publications 3, Sciences Po.
  9. Friedrich L. Sell, 2012. "Some of the Pros and Cons of Central Banking Supervision by the ECB," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(4), pages 40-45, December.

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