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Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking

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  • : Gianni De Nicolo
  • Andrea Gamba
  • Marcella Lucchetta

Abstract

This paper studies the impact of bank regulation and taxation in a dynamic model with banks exposed to credit and liquidity risk. We find an inverted U-shaped relationship between capital requirements and bank lending, efficiency, and welfare, with their benefits turning into costs beyond a certain requirement threshold. By contrast, liquidity requirements reduce lending, efficiency and welfare significantly. The costs of high capital and liquidity requirements represent a lower bound on the benefits of these regulations in abating systemic risks. On taxation, corporate income taxes generate higher government revenues and entail lower efficiency and welfare costs than taxes on non-deposit liabilities.

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File URL: http://web.warwick.ac.uk/fac/soc/financeRepec/Repec/2012/DenicoloGambaLucchetta2012CRLRTDMB.pdf
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Paper provided by Warwick Business School, Finance Group in its series Working Papers with number wpn12-04.

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Date of creation: 2012
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Handle: RePEc:wbs:wpaper:wpn12-04

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Cited by:
  1. de la Torre, Augusto & Ize, Alain, 2013. "The foundations of macroprudential regulation : a conceptual roadmap," Policy Research Working Paper Series 6575, The World Bank.
  2. Gunther Capelle-Blancard & Olena Havrylchyk, 2013. "Incidence of Bank Levy and Bank Market Power," Working Papers 2013-21, CEPII research center.

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