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Capital regulation, liquidity requirements and taxation in a dynamic model of banking

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  • De Nicolò, Gianni
  • Gamba, Andrea
  • Luccetta, Marcella

Abstract

This paper studies the impact of bank regulation and taxation in a dynamic model where banks are exposed to credit and liquidity risk and can resolve financial distress in three costly forms: bond issuance, equity issuance or fire sales. 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 threshold. By contrast, liquidity requirements reduce lending, efficiency and welfare significantly. 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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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 10/2012.

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Date of creation: 2012
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Handle: RePEc:zbw:bubdps:102012

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Keywords: Bank Regulation; Taxation; Dynamic Banking Model;

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Cited by:
  1. Cordella, Tito & Pienknagura, Samuel, 2013. "Macro prudential policies from a micro prudential angle," Policy Research Working Paper Series 6721, The World Bank.
  2. de la Torre, Augusto & Ize, Alain, 2013. "The foundations of macroprudential regulation : a conceptual roadmap," Policy Research Working Paper Series 6575, The World Bank.
  3. 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.
  4. Claudia M. Buch & Björn Hilberg & Lena Tonzer, 2014. "Taxing Banks: An Evaluation of the German Bank Levy," CESifo Working Paper Series 4704, CESifo Group Munich.
  5. Lakshmi Balasubramanyan, 2011. "The Impact of Concurrent Capital and Liquidity Requirements," NFI Working Papers 2011-WP-25, Indiana State University, Scott College of Business, Networks Financial Institute.
  6. Corbae, Dean & D'Erasmo, Pablo, 2014. "Capital requirements in a quantitative model of banking industry dynamics," Working Papers 14-13, Federal Reserve Bank of Philadelphia.
  7. 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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