Advanced Search
MyIDEAS: Login

Optimal Regulation of Bank Capital and Liquidity: How to Calibrate New International Standards

Contents:

Author Info

  • Ray Barrell

    (National Institute of Economic and Social Research)

  • E Philip Davis

    (National Institute of Economic and Social Research and Brunel University)

  • Tatiana Fic

    (National Institute of Economic and Social Research)

  • Dawn Holland

    (National Institute of Economic and Social Research)

  • Simon Kirby

    (National Institute of Economic and Social Research)

  • Iana Liadze

    (National Institute of Economic and Social Research)

Abstract

Raising capital adequacy standards and introducing binding liquidity requirements can have beneficial effects if they reduce the probability of a costly financial crisis, but may also reduce GDP by raising borrowing costs for households and companies. In this paper, we estimate both benefits and costs of raising capital and liquidity, with the benefits being in terms of reduction in the probability of banking crises, while the costs are defined in terms of the economic impact of higher spreads for bank customers. We note that both of these results are contrary to the Modigliani-Miller theorem of irrelevance of the debt-equity choice. The result shows a positive net benefit from regulatory tightening, for a range of 2-6 percentage points increase in capital and liquidity ratios, depending on underlying assumptions.

Download Info

If 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.
File URL: http://www.fsa.gov.uk/pubs/occpapers/op38.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Financial Services Authority in its series Occasional Papers with number 38.

as in new window
Length: 57 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:fsa:occpap:38

Contact details of provider:
Postal: 25 The North Colonnade, Canary Wharf, London E14 5HS
Phone: +44 (020) 7066 1000
Fax: +44 (020) 7066 1099
Email:
Web page: http://www.fsa.gov.uk
More information through EDIRC

Related research

Keywords: bank; capital; financial regulation; prudential policy; credit; lending;

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Miles, David & Yang, Jing & Marcheggiano, Gilberto, 2011. "Optimal Bank Capital," Discussion Papers 31, Monetary Policy Committee Unit, Bank of England.
  2. Athanasoglou, Panayiotis P. & Daniilidis, Ioannis & Delis, Manthos D., 2014. "Bank procyclicality and output: Issues and policies," Journal of Economics and Business, Elsevier, vol. 72(C), pages 58-83.
  3. Maria Abascal & Luis Carranza & Mayte Ledo & Arnoldo Lopez Marmolejo, 2011. "Impact of Financial Regulation on Emerging Countries," Working Papers 1108, BBVA Bank, Economic Research Department.
  4. Cristian IONESCU, 2013. "Financial stability between liberalization and regulation," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(9(586)), pages 145-167, September.
  5. Corder, Matthew & Weale, Martin, 2011. "Banking crises and recessions: what can leading indicators tell us?," Discussion Papers 33, Monetary Policy Committee Unit, Bank of England.
  6. Emanuel Kopp & Christian Ragacs & Stefan W. Schmitz, 2010. "The Economic Impact of Measures Aimed at Strengthening Bank Resilience – Estimates for Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 20.
  7. Panayiotis P. Athanasoglou & Ioannis Daniilidis, 2011. "Procyclicality in the banking industry: causes, consequences and response," Working Papers 139, Bank of Greece.
  8. Jochen Schanz & David Aikman & Paul Collazos & Marc Farag & David Gregory & Sujit Kapadia, 2011. "The long-term economic impact of higher capital levels," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential regulation and policy, volume 60, pages 73-81 Bank for International Settlements.
  9. Robert-Paul Berben & Beata Bierut & Jan Willem van den End & Jan Kakes, 2010. "Macro-effects of higher capital and liquidity requirements for banks," DNB Occasional Studies 803, Netherlands Central Bank, Research Department.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fsa:occpap:38. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria-Jose Barbero).

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.